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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1994 0-8709
U. S. TRUST CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2927955
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
114 West 47th Street, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 852-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Par Value $1 Per Share
(Title of Class)
Rights to Purchase Series A Participating Cumulative Preferred Shares
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Page 1 of 67 Pages
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. (See definition of
affiliate in Rule 405, 17 CFR 230.405.)
$632,658,000 as of February 28, 1995
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
9,504,720 Common Shares, Par Value $1 Per Share, as of February 28,
1995.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Annual Report to Shareholders for fiscal year ended
December 31, 1994 is incorporated by reference (Part I, Part II).
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PART I
------
Item 1. Business
- -----------------
U.S. Trust Corporation (the "Corporation") was incorporated in New
York in 1977 and became a bank holding company in 1978. United States
Trust Company of New York, a New York bank and trust company (the
"Trust Company"), the Corporation's principal subsidiary, was created as
a trust company by Special Act of the New York Legislature in 1853. The
Corporation, through the Trust Company and its other subsidiaries,
provides financial services to individuals and institutions. The
Corporation conducts five principal businesses: asset management,
private banking, special fiduciary, corporate trust and securities
processing. At December 31, 1994, the Corporation and its consolidated
subsidiaries had total assets of approximately $3.2 billion, total
deposits of approximately $2.4 billion and shareholders' equity of
approximately $223 million. At year-end, the Corporation had 2,558
full-time employees.
The Corporation's principal executive office is located at 114 West
47th Street, New York, New York 10036 and its telephone number at such
office is (212) 852-1000.
For a description of the Corporation's principal areas of business,
see pages 7 through 13 of the 1994 Annual Report to Shareholders filed
herewith as Exhibit 13, which description is incorporated by reference
herein.
Pending Disposition and Merger Transaction
- ------------------------------------------
On November 18, 1994, the Corporation and The Chase Manhattan
Corporation ("Chase") entered into an Agreement and plan of Merger under
which Chase will acquire the Corporation's institutional custody, mutual
funds servicing and unit trust businesses (the "Processing Business")
and certain back office operations (collectively the "Chase Acquired
Business") for $363.5 million in Chase common stock. For a description
of the pending transaction, see the Proxy Statement/Prospectus dated
February 9, 1995 for a special meeting of shareholders of the
Corporation to be held on March 22, 1995, filed herewith as Exhibit
99.1. The pro forma condensed statement of condition as of December 31,
1994, pro forma condensed statement of income for the year ended
December 31, 1994 and the pro form condensed statement of average
balances for the year ended December 31, 1994 are filed herewith as
Exhibit 99.2. Exhibits 99.1 and 99.2 are incorporated herein by
reference.
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Description of the Corporation's Businesses
- -------------------------------------------
Set forth below is a description of the Corporation's businesses as
they existed at December 31, 1994, before taking into account the
pending transaction with Chase.
Asset Management and Private Banking
------------------------------------
The Corporation provides asset management services to individuals,
families and institutions and private banking.
In the personal asset management and private banking business, the
Corporation's primary focus is the top 2% wealthiest Americans, those
with over $200,000 in income or $450,000 in investable assets. The
Corporation believes (based on syndicated market research studies
conducted by Payment Systems, Inc., an independent research firm) that
this market is growing at 14% to 20% annually and that less than one-
third of the assets in this market are professionally managed. The
personal asset management and private banking business is highly
competitive and comprised of a wide variety of institutions vying for
business, including banking institutions, brokerage firms, investment
management companies and mutual fund companies. No one competitor
dominates this market. The Corporation believes that it differentiates
itself from its competitors by providing both investment management and
comprehensive wealth management services. The Corporation's full range
of investment management services for the affluent includes U.S. and
international equities, fixed-income, balanced portfolios, alternative
investments, mutual funds and 401(k) plans. The Corporation also
provides private banking, trust and fiduciary services, estate and tax
planning, financial planning, custody, insurance services and
consolidated record keeping.
The Corporation has divided its personal market into three segments
and tailored its products and service delivery to each. Its primary
market consists of individuals with $2 million to $50 million in assets.
Investment portfolios for this market segment are generally individually
managed and require the use of a number of the Corporation's services.
The Corporation is currently expanding its line of products for this
market segment by adding a variable annuity product and a venture
capital fund.
For the second segment of the Corporation's personal market - those
customers with $250,000 to $2 million in assets - the Corporation
provides investment management services, principally through the
"UST Master Fund" family of 25 mutual funds. The Corporation's "Wealth
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Asset Management and Private Banking (Cont'd.)
------------------------------------
Management Account" assets now total over $600 million with an average
account balance size of $650,000. The Corporation's private banking
services are also responsible for attracting this portion of the
Corporation's market, comprised of generally younger, earned wealth
customers whose assets are expected to grow over time.
The third segment of the Corporation's personal market includes
families with over $50 million in assets. The Corporation currently
serves well over 100 such families. To help meet the increasingly
sophisticated and complex needs of these families, the Corporation
acquired CTC Consulting, Inc. ("CTC") in July of 1993. CTC provides
independent counseling on investment policy, manager selection and
performance measurement. The Corporation offers an enhanced master
custody product for this market, as well as specialized consulting
services for family-owned businesses. The Corporation has also expanded
its family office capabilities to serve clients in this market.
A major strategic goal of the Corporation's personal asset
management and private banking business for over a decade has been
national expansion. Personal asset management and private banking
clients usually require service to be provided at the local level.
Expanding beyond its New York City headquarters to meet these demands,
the Corporation has established offices nationwide in areas it believes
are comprised of concentrated wealth: California, Connecticut, Florida,
New Jersey, Texas and the Pacific Northwest. The Corporation's future
goals include expansion in those regions where the Corporation currently
provides asset management services and in other areas of wealth
concentration and creation.
The Corporation's institutional asset management business provides
a wide range of investment management services directly to institutional
clients: domestic and international equity, fixed-income, money market
and balanced portfolios, as well as structured investments, index funds,
alternative investments and cash management.
The Corporation has placed increased emphasis on the sales effort
supporting the personal asset management business, including in recent
years a three-fold increase in the size of its sales force and the
implementation a decade ago of a generous sales incentive program for
all employees. In addition, the Corporation possesses a dedicated sales
force committed to the institutional asset management business.
The Corporation believes providing its investment management
services through third-party distribution channels is an increasingly
important aspect of its asset management business. The Corporation is
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Asset Management and Private Banking (Cont'd.)
------------------------------------
broadening the distribution of its UST Master Fund family and its
"Excelsior Funds", introduced in 1994 for the institutional market,
through small banks, broker/ dealers and private labeling. The
Corporation also has a "wrap" program through which its fixed-income
investment products are sold by five brokerage firms and assets now
total over $500 million with approximately 900 accounts. The
Corporation's proprietary variable annuity, developed jointly with The
Chubb Life Companies ("Chubb"), is linked to clones of the UST Master
Funds and will be sold through over 200 independent third-party
distributors, as well as by the Corporation and Chubb.
In the rapidly growing 401(k) market, the Corporation is currently
developing a bundled product aimed at plans with more than $5 million in
assets. The Corporation will provide investment management for the
bundled product using a subset of the Excelsior Funds and an asset
allocation model to create a "life stages portfolios" product. This
product will also feature administration by the Corporation, third-party
record keeping and an employee education component.
The Corporation provides private banking services through its four
offices in New York City and through its regional offices in California,
Connecticut, Florida, New Jersey and Texas. Residential mortgages
continue to be the principal credit product in private banking,
accounting for nearly two-thirds of the portfolio. Private banking
loans represent almost 90% of the Corporation's total average loans,
which amounted to $1.3 billion for the year 1994. The remaining loans
are primarily comprised of credit facilities to securities firms and
other financial institutions. The Corporation's credit quality
continues to be strong. As a percentage of total average loans, net
loan charge-offs for the year 1994 were five basis points.
Asset management and private banking customer deposits comprise a
principal source of funds employed to finance the loan portfolio. For
the year ended December 31, 1994, non-interest bearing asset management
and private banking deposits were approximately $331 million and
interest bearing deposits were approximately $1.4 billion.
Historically, these deposits have been a stable source of funds to the
Corporation.
Special Fiduciary Services
--------------------------
The Corporation provides investment, fiduciary and consulting
services to employee benefit plans that invest in employer stocks and to
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Special Fiduciary Services (Cont'd.)
--------------------------
individuals and families with substantial ownership positions in public
or private companies. The Corporation specializes in providing these
services to large, complex plans and believes it is the leading provider
of such services in this segment of the market. Competition in this
segment of the market comes from several financial industry
participants, including primarily other trust companies.
Corporate Trust and Agency
--------------------------
One of the 10 largest corporate trustees in the country, the
Corporation is a leader in providing trust, agency and related services
to public and private corporations, municipalities and financial
institutions. Corporate trust and agency assets currently total
approximately $152 billion. The Corporation's independence and
established long-term relationships are an advantage in the indenture
trusteeship business, where the Corporation concentrates on the high
margin segment of the market. Competitors include money center and
regional banks.
During each of the past three years, the Corporation has been the
leading trustee in New York State for new municipal long-term debt and
ranks among the top three trustees nationally.
The Corporation is also a leader in providing trustee services for
complex new types of securities, as well as a provider of bond
immobilization services. The Corporation believes these segments to be
two of the fastest growing areas of the corporate trust and agency
business.
The Corporation has strengthened its national presence in the
corporate trust and agency business with the opening of corporate trust
offices in California and Texas.
Securities Processing
---------------------
The Corporation's Processing Business consists of its Institutional
Asset Services and Funds Services areas. Success in these areas of
business requires ongoing significant investments in state-of-the-art
technology to both maintain and improve the Corporation's competitive
position. The high level of capital investment required by the
Processing Business was a major factor for entering into the transaction
with Chase.
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Institutional Asset Services
----------------------------
The Corporation is a full-service provider of master trust and
master custody services to institutional investors, including on-line
accounting and reporting, quantitative analysis, cash management,
securities lending and global custody. The Corporation has concentrated
on marketing its services to those segments of the market that require
the sophisticated systems and superior service that the Corporation
provides.
Funds Services
--------------
The Corporation provides trust, administrative and processing
services for unit investment trusts, mutual funds and closed-end funds,
and bond immobilization services to issuers of debt instruments. Unit
investment trusts are passive asset pools administered by a trustee,
which serves as custodian, recordkeeper, income collector and disburser,
and transfer agent. Municipal bonds are the securities most commonly
held in unit investment trusts. To a lesser extent, common stocks,
corporate bonds, asset-backed securities and collateralized mortgage
obligations are also held in unit investment trusts.
Mutual funds services include the provision of fund administration,
transfer agency, custody and fund accounting services to mutual fund
sponsors for both open-end and closed-end funds.
Competition
- -----------
The Corporation's asset management and private banking business
competes with investment counselling firms and with investment bankers
and brokers which offer advisory services and, to some extent, with
mutual funds. The trust and agency business is also highly competitive.
Many commercial banks, with larger capitalizations and deposits, and
several smaller specialized banks throughout the country provide similar
fiduciary services.
In its private banking, corporate trust and securities processing
activities, the Corporation operates in an intensely competitive
environment, both as to service and price, with other banks principally
in the New York metropolitan area, California, Florida, Texas and the
pacific northwest.
Competition in the Corporation's special fiduciary services
business comes from several financial industry participants, including
primarily other trust companies.
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Banking and Trust Subsidiaries
- ------------------------------
The Trust Company is a member bank of the Federal Reserve System,
an insured bank of the Federal Deposit Insurance Corporation and a
member of the New York Clearing House Association. The Trust Company
had total assets of approximately $2.7 billion, total deposits of
approximately $2.1 billion and shareholder's equity of approximately
$187 million at December 31, 1994. Dividends have been paid by the
Trust Company in every year since its organization in 1853. At year-
end, the Trust Company had 1,815 full-time employees.
The Corporation's other banking subsidiaries are U.S. Trust Company
of California, N.A. ("California"), U.S. Trust Company of Florida
Savings Bank ("Florida") and U.S. Trust Company of Texas, N.A.
("Texas"). Each of these subsidiaries has full banking and trust powers
within their respective states and provides essentially comparable
services to those offered by the Trust Company.
U.S. Trust Company of New Jersey ("New Jersey") is a full-service
trust company. In addition to its trust activities, commencing in 1993,
New Jersey also provides private banking services.
U.S. Trust Company of Connecticut was opened for business as a
limited purpose trust company in June 1993.
Campbell, Cowperthwait & Co., Inc. ("Campbell"), a New York City-
based investment advisory company, was acquired in December 1992.
Capital Trust Company ("Capital Trust"), an Oregon-based trust and
investment management firm, was acquired in July 1993. As of January 1,
1994, Capital Trust changed its name to U.S. Trust Company of the
Pacific Northwest and its consulting practice was contributed to a
separate subsidiary, CTC Consulting, Inc.
For an additional discussion of these acquisitions, see page 18 of
the 1994 Annual Report to Shareholders and Note 3 of Notes to
Consolidated Financial Statements on page 27 of such Annual Report filed
herewith as Exhibit 13, which discussion is incorporated by reference
herein.
Recent Developments
- -------------------
On January 17, 1995, the Corporation announced an agreement to
acquire the individual account business of J. & W. Seligman & Co. Inc.,
and to purchase J. & W. Seligman Trust Company. J. & W. Seligman & Co.
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Recent Developments (Cont'd.)
- -------------------
Inc., is a privately held investment manager and advisor located in New
York. Under the agreement, the Corporation will pay up to $20 million
in cash for the business being acquired (approximately $900 million in
assets under management). The transaction is expected to close during
the second quarter of 1995.
Government Monetary Policies
- ----------------------------
Monetary authorities have a significant impact on the operating
results of the Corporation and other financial service institutions.
The decisions of the Board of Governors of the Federal Reserve System
("the Board of Governors") affect the supply of money and member bank
reserves by means of open market operations in U. S. Government
securities or by changes in the discount rate or reserve requirements.
The Board of Governors' actions have an important influence on the
growth of bank loans and investments and the level of interest charged
for loans and paid on deposits. Because of changing conditions in the
money markets, as a result of actions by the Board of Governors and
other regulatory authorities, interest rates, credit availability,
deposit levels and bond and stock prices may change materially due to
circumstances beyond the control of the Corporation.
Supervision and Regulation of the Corporation and Affiliates
- ------------------------------------------------------------
General
-------
The Corporation is a legal entity separate and distinct from its
subsidiaries. The ability of holders of debt and equity securities of
the Corporation to benefit from the distribution of assets of any
subsidiary upon the liquidation or reorganization of such subsidiary is
subordinate to prior claims of creditors of the subsidiary except to the
extent that a claim of the Corporation as a creditor may be recognized.
There are various statutory and regulatory limitations on the
extent to which banking subsidiaries of the Corporation can finance or
otherwise transfer funds to the Corporation or its nonbanking
subsidiaries, whether in the form of loans, extensions of credit,
investments or asset purchases. Such transfers by any subsidiary bank
to the Corporation or any nonbanking subsidiary are limited in amount to
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General (Cont'd.)
-------
10% of the bank's capital and surplus and, with respect to the
Corporation and all such nonbanking subsidiaries, to an aggregate of 20%
of each such bank's capital and surplus. Furthermore, loans and
extensions of credit are required to be secured in specified amounts and
are required to be on terms and conditions consistent with safe and
sound banking practices.
There are also regulatory limitations on the payment of dividends
directly or indirectly to the Corporation from its banking subsidiaries.
Under applicable banking statutes, at December 31, 1994, the banking
institutions that are subsidiaries of the Corporation could have
declared additional dividends of approximately $33.9 million.
Under the policy of the Board of Governors, the Corporation is
expected to act as a source of financial strength to each subsidiary
bank and to commit resources to support such subsidiary bank in
circumstances where it might not do so absent such policy. In addition,
any subordinated loans by the Corporation to any of the subsidiary banks
would also be subordinate in right of payment to deposits and
obligations to general creditors of such subsidiary bank. Further, the
Crime Control Act of 1990 provides that in the event of the bankruptcy
of the Corporation, any commitment by the Corporation to bank regulators
to maintain the capital of a banking subsidiary will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Bank Holding Company Act of 1956
--------------------------------
The Corporation is a bank holding company within the meaning of the
Federal Bank Holding Company Act of 1956 (the "Act") and is so
registered with the Board of Governors. As such, the Corporation is
required to file with the Board of Governors annual reports and other
information and is subject to examination regarding its business
operations and those of its subsidiaries. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with the extension of credit or
provision of any property or service.
The Act requires every bank holding company to obtain the prior
approval of the Board of Governors before acquiring substantially all
the assets of any bank or before acquiring direct or indirect ownership
or control of more than 5% of the voting shares of any bank which is not
already majority-owned. Until September 29, 1995, the Act prohibits the
acquisition by a bank holding company of shares of a bank located
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Bank Holding Company Act of 1956 (Cont'd.)
--------------------------------
outside the state in which the operations of its banking subsidiaries
are principally conducted, unless such an acquisition is specifically
authorized by a statute of the state in which the bank to be acquired is
located. The Act, also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any
company which is not a bank and from engaging in any business other than
banking or managing or controlling banks or furnishing services to or
performing services for its subsidiary banks. One of the exceptions to
this prohibition is engaging in, or acquiring shares of a company which
engages in, activities which the Board of Governors has determined to be
so closely related to banking or managing or controlling banks as to be
a proper incident thereto. Under current regulations, bank holding
companies and their subsidiaries are permitted to engage in such banking
and banking-related businesses as equipment leasing, computer service
bureau operations, acting as investment or financial adviser, performing
fiduciary, agency and custodial services, certain types of real estate
financing and providing management consulting advice to non-affiliated
banks.
In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the Board of Governors
considers a number of factors, including the expected benefits to the
public such as greater convenience, increased competition or gains in
efficiency, as weighed against the risks or possible adverse effects
such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The
Board of Governors is also empowered to differentiate between activities
commenced de novo and activities commenced through acquisition of a
going concern. The Board of Governors may order a bank holding company
to terminate any activity or its ownership or control of a nonbank
subsidiary if the Board of Governors finds that such activity or
ownership or control constitutes a serious risk to the financial safety,
soundness or stability of a subsidiary bank and is inconsistent with
sound banking principles or statutory purposes.
Other Federal and State Banking Regulation
------------------------------------------
The Superintendent of Banks of the State of New York has the
discretion to examine the affairs of the Corporation for the purpose of
determining the financial condition of the Trust Company. The Trust
Company and its operations are subject to federal and New York State
laws applicable to commercial banks and trust companies and to
regulation and examination by both federal and New York banking
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Other Federal and State Banking Regulation (Cont'd.)
------------------------------------------
authorities. Government regulations affecting the Trust Company and its
operations include minimum capital requirements, the requirement to
maintain reserves against deposits, restrictions on the nature and
amount of loans which may be made by the Trust Company and restrictions
relating to investments and other activities.
New York banks are barred from acting as a fiduciary in a number of
states, and in a number of other states where they may and do act as a
fiduciary, their activities are limited by state law and regulations.
The Corporation through its ownership of Florida is a savings bank
holding company. Accordingly, the Corporation and Florida are subject
to regulation and examination by the Office of Thrift Supervision.
California and Texas are subject to regulation and examination by the
Office of the Comptroller of the Currency. New Jersey is subject to
regulation and examination by the Banking Department of the State of New
Jersey. U.S. Trust Company of the Pacific Northwest is subject to
regulation and examination by the Division of Finance and Corporate
Securities of the State of Oregon.
The Federal Reserve Act and the Federal Deposit Insurance Act
impose certain restrictions on loans by the bank subsidiaries to the
Corporation and each other. In addition, the Corporation and its
subsidiaries are subject to restrictions imposed by the Banking Act of
1933 with respect to engaging in certain aspects of the securities
business.
FIRREA
------
As a result of the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act ("FIRREA") on August 9, 1989, any or all of
the Corporation's subsidiary banks can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the Federal
Deposit Insurance Corporation ("FDIC") after August 9, 1989, in
connection with (a) the default of any other of the Corporation's
subsidiary banks or (b) any assistance provided by the FDIC to any other
of the Corporation's subsidiary banks in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver and
"in danger of default" is defined generally as the existence of certain
conditions indicating that a "default" is likely to occur without
regulatory assistance.
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FDICIA
------
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which was enacted on December 19, 1991, provides for, among
other things, increased funding for the Bank Insurance Fund (the "BIF")
of the FDIC and expanded regulation of depository institutions and their
affiliates, including parent holding companies. A summary of certain
provisions of FDICIA and its implementing regulations is provided below.
Risk Based Deposit Insurance Assessments
----------------------------------------
A significant portion of the additional funding to BIF is in the
form of borrowings to be repaid by insurance premiums assessed on BIF
members. In addition, FDICIA provides for an increase in the ratio of
the reserves to insured deposits of the BIF to 1.25% by the end of the
15-year period that began with the semi-annual assessment period ending
December 31, 1991, also to be financed by insurance premiums. Insurance
premiums for a BIF-Insured institution are based on whether the
institution is within the definition of "well capitalized", "adequately
capitalized" or "undercapitalized". For purposes of the risk-based
assessment system, a well capitalized institution is one that has a
total risk-based capital ratio of 10% or more, a Tier 1 risk-based
capital of 6% or more, and a Tier 1 leverage ratio of 5% or more. An
adequately capitalized institution has a total risk-based capital ratio
of 8% or more, a Tier 1 risk-based capital ratio of 4% or more, and a
leverage ratio of 4% or more. An undercapitalized institution is one
that does not meet either of the foregoing definitions. The actual
assessment rate applicable to a particular institution, therefore,
depends in part upon the risk assessment classification so assigned to
the institution by the FDIC. At December 31, 1994, each of the
Corporation's banking subsidiaries was classified as "well capitalized"
under these provisions.
Prompt Corrective Action
------------------------
FDICIA also provides the federal banking agencies with broad powers
to take prompt corrective action to resolve problems of insured
depository institutions, depending upon a particular institution's level
of capital. FDICIA establishes five tiers of capital measurement
ranging from "well capitalized" to "critically undercapitalized". A
depository institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position under
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Prompt Corrective Action (Cont'd.)
------------------------
certain circumstances. At December 31, 1994, each depository
institution that is a subsidiary of the Corporation was classified as
"well capitalized" under the prompt corrective actions regulations
described above.
Any depository institution that is undercapitalized and which fails
to meet regulatory capital requirements specified in FDICIA must submit
a capital restoration plan guaranteed by the bank holding company
controlling such institution, and the regulatory agencies may place
limits on the asset growth and restrict activities of the institution
(including transactions with affiliates), require the institution to
raise additional capital, dispose of subsidiaries or assets or to be
acquired and, ultimately, require the appointment of a receiver. In
addition to the requirement of mandatory submission of a capital
restoration plan, under FDICIA, an undercapitalized institution may not
pay management fees to any person having control of the institution nor
may an institution, except under certain circumstances and with prior
regulatory approval, make any capital distribution if, after making such
payment or distribution, the institution would be undercapitalized.
Further, undercapitalized depository institutions are subject to
restrictions on borrowing from the Board of Governors.
Undercapitalized and significantly undercapitalized depository
institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. In addition,
significantly undercapitalized depository institutions also are
prohibited from awarding bonuses or increasing compensation of senior
executive officers until approval of a capital restoration plan.
Critically undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
Brokered Deposits and Pass-Through Deposit Insurance Limitation
---------------------------------------------------------------
Under FDICIA, a depository institution that is well capitalized may
accept brokered deposits and offer interest rates on deposits
"significantly higher" than the prevailing rate in its market. A
depository institution that is adequately capitalized may accept
brokered deposits if it obtains the prior approval of the FDIC. An
undercapitalized depository institution may not accept brokered
deposits. In the Corporation's opinion, these limitations do not have a
material effect on the Corporation.
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Safety and Soundness Standards
------------------------------
FDICIA directs each federal banking agency to prescribe safety and
soundness standards for depository institutions and depository
institution holding companies relating to internal controls, information
systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a
maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses without impairing capital and, to the extent
feasible, a minimum ratio of market value to book value for publicly
traded shares. Proposed regulations to implement the safety and
soundness standards were issued in November 1993. The ultimate
cumulative effect of these standards cannot currently be forecast.
FDICIA also contains a variety of other provisions that may affect
the Corporation's operations, including new reporting requirements,
regulatory standards for real estate lending, "truth in savings"
provisions, and the requirement that a depository institution give
90 days' prior notice to customers and regulatory authorities before
closing any branch.
Capital Guidelines
------------------
Under the capital guidelines adopted by the Board of Governors, the
minimum ratio of total capital to the risk-adjusted assets (including
certain off-balance sheet items, such as standby letters of credit) of a
bank holding company is 8%. At least half of the total capital is to be
comprised of common equity, retained earnings, minority interests in the
equity accounts of consolidated subsidiaries and a limited amount of
perpetual preferred stock, less goodwill ("Tier 1 capital"). The
remainder may consist of perpetual debt, mandatory convertible debt
securities, a limited amount of subordinated debt, other preferred stock
and a limited amount of loan loss reserves ("Tier 2 capital"). In
addition, the Board of Governors requires a leverage ratio (Tier 1
capital to total assets, net of goodwill) of 3% for bank holding
companies that meet certain specified criteria, including that they have
the highest regulatory rating. Such rule indicates that the minimum
leverage ratio should be 1% to 2% higher for holding companies
undertaking major expansion programs or that do not have the highest
regulatory rating. The state chartered and national banking
institutions that are subsidiaries of the Corporation are subject to
similar capital requirements.
The federal banking agencies continue to indicate their desire to
raise capital requirements applicable to banking organizations, and
-16-
<PAGE>
Capital Guidelines (Cont'd.)
------------------
recently proposed amendments to their risk-based capital regulations to
provide for the consideration of interest rate risk in the determination
of a bank's minimum capital requirements. The proposed amendments are
intended to require that banks effectively measure and monitor their
interest rate risk and that they maintain capital adequate for that
risk. Under the proposed amendments, banks with interest rate risk in
excess of a defined supervisory threshold would be required to maintain
additional capital beyond that generally required. In addition, the
federal banking agencies recently proposed amendments to their risk-
based capital standards to provide for the concentration of credit risk
and certain risks arising from nontraditional activities, as well as a
bank's ability to manage these risks, as important factors in assessing
a bank's overall capital adequacy.
As of December 31, 1994, the capital ratios of the Corporation and
of each of its banking subsidiaries are well capitalized.
Under FIRREA and FDICIA, failure to meet the minimum regulatory
capital requirements could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities,
including the termination of deposit insurance by the FDIC and seizure
of the institution.
On September 29, 1994, President Clinton signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"). The Interstate Act generally authorizes bank holding
companies to acquire banks located in any state commencing one year
after its enactment. In addition, it generally authorizes national and
state chartered banks to merge across state lines (and to thereby create
interstate branches) commencing June 1, 1997. Under the provisions of
the Interstate Act, states are permitted to "opt out" of this latter
interstate branching authority by taking action prior to the
commencement date. States may also "opt in" early (i.e., prior to
June 1, 1997) to the interstate merger provisions. Further, the
Interstate Act provides that states may act affirmatively to permit de
novo branching by banking institutions across state lines.
-17-
<PAGE>
Statistical Information
- -----------------------
The following items set forth certain statistical information
concerning the Corporation. The page numbers indicated below correspond
to page numbers in the 1994 Annual Report to Shareholders filed herewith
as Exhibit 13. The applicable statistical data presented on those
pages, under the captions specifically cited, are incorporated herein by
reference.
I. Distribution of Assets, Liabilities and Shareholders'
Equity; Interest Rates and Interest Differential
-----------------------------------------------------
A. Information with respect to the distribution of assets,
liabilities and shareholders' equity is included on pages 44 and 45
under the caption "Three-Year Net Interest Income and Average Balances."
B. An analysis of net interest income is shown on pages 44 and 45
under the caption "Three-Year Net Interest Income and Average Balances."
The amounts of the taxable equivalent adjustments are as follows:
<TABLE>
(In Thousands) 1994 1993 1992
- -------------- ------ ------- ------
<S> <C> <C> <C>
Investment Securities $4,630 $5,750 $8,105
====== ====== ======
Loans $ 24 $ 60 $ 132
====== ====== ======
</TABLE>
Interest on non-accrual and restructured loans has been included in this
analysis only to the extent collected.
C. An analysis of rate and volume variances is shown on page 43
under the caption "Analysis of Change in Net Interest Income."
II. Investment Portfolio
--------------------
Information with respect to the composition of the investment
securities portfolio is shown on page 46 under the caption "Securities
(Carrying Amount at Year End)." The maturity distribution of the year-
end 1994 portfolio is shown on page 46 under the caption "Maturity
Schedule of Securities Based on Amortized Cost at December 31, 1994."
-18-
<PAGE>
III. Loan Portfolio
--------------
A. Information with respect to loan categories is included on
page 29 under the caption "Loans."
B. Information on maturities and sensitivity to changes in
interest rates is shown on page 46 under the captions "Maturity Schedule
of Loans at December 31, 1994" and "Interest Sensitivity of Loans at
December 31, 1994."
C. Information on risk elements is included on page 29 under the
caption "Loans".
IV. Summary of Credit Loss Experience
---------------------------------
Information with respect to credit loss experience and a discussion
of the factors considered in determining the amount of the allowance for
credit losses are shown on page 48 under the caption "Summary of Credit
Loss Experience."
V. Deposits
--------
A. Information with respect to average deposit balances is shown
on page 47 under the caption "Analysis of Average Daily Deposits."
B. Information on time certificates of deposit is shown on page
47 under the caption "Maturity Distribution of Interest Bearing Deposits
in Amounts of $100,000 or more at December 31, 1994."
C. Information on savings deposits is shown on page 47 under the
caption "Maturity Distribution of Time Deposits in Amounts of $100,000
or more at December 31, 1994."
VI. Return on Equity and Assets
---------------------------
Information with respect to return on equity and assets is shown on
page 5 under the caption "Selected Financial Data."
-19-
<PAGE>
VII. Short-Term Borrowings
---------------------
Information with respect to short-term borrowings is shown on page
31 under the caption "Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings."
Item 2. Properties
- ------- ----------
The Trust Company rents approximately 1,179,000 square feet of
office space in New York City, of which approximately 432,000 square
feet are sublet to various sub-tenants. The Trust Company and certain
subsidiaries occupy approximately 60% (378,000 square feet) of a 25-
story bank and office building at 114 West 47th Street (the Trust
Company's statutory principal office) under a lease expiring in 2014.
Certain of the Trust Company's departments occupy approximately 335,000
square feet of space at 770 Broadway under a lease expiring in 2005.
The Trust Company owns a 5-story building at 9-11 West 54th Street and
leases adjoining property for the operation of a branch office. The
Trust Company also operates branch offices in leased premises at 100
Park Avenue and 111 Broadway.
Certain subsidiaries of the Corporation occupy leased office space
in New York City; Costa Mesa, California; Los Angeles, California;
Stamford, Connecticut; Washington, D.C.; Boca Raton, Florida; Naples,
Florida; Palm Beach, Florida; Boston, Massachusetts; Princeton, New
Jersey; Portland, Oregon, and Dallas, Texas.
At the closing for the pending Disposition and Merger Transaction,
approximately 75% of the leased office space at 770 Broadway will be
sublet to Chase under a sublease agreement expiring in 2000 and the
obligation for all of the leased office space in Boston, Massachusetts
will be assumed by Chase.
Item 3. Legal Proceedings
- ------- -----------------
Various actions and claims are pending or are threatened against
the Trust Company or the Corporation in which liability has been denied
and which will be vigorously contested. Included among these are the
following cases:
On December 1, 1994, a complaint was filed against the Trust
Company in the Supreme Court of the State of New York, County of
New York, entitled "Ithaca Partners, L.P. and Gabriel Capital, L.P. v.
United States Trust Company." The Trust Company is Trustee under an
-20-
<PAGE>
Item 3. Legal Proceedings (Cont'd.)
- ------- -----------------
Indenture dated October 1, 1988 (the "Indenture") under which Linter
Textiles Corporation Limited ("Linter Textiles") issued $200 million in
principal amount of Senior Subordinated Debentures (the "Debentures").
Linter Textiles, a corporation organized under the laws of Australia,
was a holding company for various operating subsidiaries (the "Linter
Subsidiaries") and was also a subsidiary of Linter Group Limited
("Linter Group"). Linter Group, Linter Textiles and the Linter
Subsidiaries are being liquidated under Australian law; however, based
on the parties' contractual priorities, the proceeds of the liquidation
will be insufficient to satisfy the claims of the holders of the
Debentures. The plaintiffs are two limited partners who claim to have
purchased $97.43 million in principal amount of the Debentures.
Plaintiffs allege that the Debentures were issued pursuant to a
fraudulent prospectus which failed to disclose Linter Textiles'
intention to incur $323 million (Australian) in senior indebtedness
through guaranties of indebtedness of Linter Group and to cause the
Linter Subsidiaries to guaranty the senior indebtedness. The complaint
asserts that covenants in the Indenture were breached in connection with
the execution of those guaranties and the guaranties of the Debentures
delivered by the Linter Subsidiaries to the Trust Company in connection
therewith and asserts causes of action for breach of contract and breach
of fiduciary duty based on the Trust Company failing to take action
itself or to advise holders of the Debentures that Linter Textiles and
the Linter Subsidiaries were incurring substantial indebtedness on
behalf of the Linter Group. The complaint seeks unspecified damages
measured by the amount of the diminution from the face value of the
Debentures suffered as a result of the existence of the guaranties of
senior indebtedness, plus interest and plaintiff's expenses incurred in
connection with the liquidation proceedings in Australia.
In July 1990, an action captioned "Official Committee of Unsecured
Creditors of Fulfillment Associates, Inc. v. Louis Freedman et al. v.
United States Trust Company of New York" was brought in the United
States Bankruptcy Court for the Eastern District of New York. The
complaint was filed by the Creditors Committee of Fulfillment
Associates, Inc. (the "CCFA") against stockholders of CCFA who sold
their shares in a leveraged buyout financed by the Trust Company. The
complaint seeks damages in excess of $500,000 and alleges a fraudulent
transfer in the granting of liens to the Trust Company on the assets of
CCFA, abuse of fiduciary duty by the stockholders and breach of
employment agreements entered into by the stockholders with CCFA. The
stockholders have filed a third-party complaint against the Trust
Company in an unspecified amount seeking indemnification or contribution
for all amounts for which the stockholders may be held liable to CCFA.
The Trust Company's motion to dismiss the third-party complaint is
pending before the Bankruptcy Court.
-21-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related
- ------- Stockholder Matters
----------------------------------------------------
The information required under this item is incorporated herein by
reference from page 47 of the 1994 Annual Report to Shareholders filed
herewith as Exhibit 13.
Item 6. Selected Financial Data
- ------- -----------------------
The information required under this item is incorporated herein by
reference from page 5 of the 1994 Annual Report to Shareholders filed
herewith as Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations
-------------------------------------------------
The information required under this item is incorporated herein by
reference from pages 6 through 19 of the 1994 Annual Report to
Shareholders filed herewith as Exhibit 13. In addition, the following
information is added, under the indicated heading.
Income Taxes
- ------------
The Corporation had deferred tax assets of $44.3 million at
December 31, 1994. The Corporation has sufficient Federal income tax
carryback potential to realize the entire Federal income tax portion of
its deferred tax assets. The state and local income tax portion of the
Corporation's deferred tax assets is theoretically realizable based upon
the taxable income that is expected to be generated in the current year
for state and local purposes from the Corporation's ongoing operations.
-22-
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The information required under this item is incorporated herein by
reference from pages 20 through 42 of the 1994 Annual Report to
Shareholders filed herewith as Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on
- ------- Accounting and Financial Disclosure
------------------------------------------------
None
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
Directors
- ---------
The Corporation's Board consists of 22 persons, each of whom has
been elected for a term expiring at the annual meeting of the
Corporation's stockholders indicated below, and until his or her
successor shall have been elected and qualified. The following table
sets forth information concerning these individuals.
<TABLE>
Term Expires at
Name Age Annual Meeting in
---- --- -----------------
<S> <C> <C>
Eleanor Baum 54 1996
Samuel C. Butler 64 1998
Peter O. Crisp 62 1997
Daniel P. Davison 70 1997
Philippe de Montebello 58 1996
Paul W. Douglas 68 1998
Edwin D. Etherington 70 1996
Antonia M. Grumbach 51 1997
Frederic C. Hamilton 67 1997
Peter L. Malkin 61 1997
Jeffrey S. Maurer 47 1997
Orson D. Munn 70 1998
Donald M. Roberts 59 1996
-23-
<PAGE>
Directors (Cont'd.)
- ---------
Term Expires at
Name Age Annual Meeting in
---- --- -----------------
H. Marshall Schwarz 58 1998
Philip L. Smith 61 1998
John Hoyt Stookey 65 1996
Frederick B. Taylor 53 1996
Richard F. Tucker 68 1997
Carroll L. Wainwright, Jr. 69 1998
Robert N. Wilson 54 1996
Frederick S. Wonham 63 1996
Ruth A. Wooden 48 1998
</TABLE>
Eleanor Baum became dean of engineering at Cooper Union in 1987.
Prior to that, she was dean at Pratt Institute in Brooklyn and worked as
an electrical engineer in the aerospace industry. Dr. Baum is also a
director of Allegheny Power Systems and Avnet, Inc. She is president-
elect of the American Society for Engineering Education and serves on
the Board of Governors of the New York Academy of Sciences. She is a
trustee of the Accreditation Board for Engineering & Technology, is a
commissioner of the Engineering Workforce Commission, and an advisory
board member at Duke University, Rice University and the U.S. Merchant
Marine Academy. She is executive director of the Cooper Union Research
Foundation and a fellow of the Institute of Electrical & Electronic
Engineers.
Samuel C. Butler joined the law firm of Cravath, Swaine & Moore in
1956 and was elected a partner of the firm in 1960. He is also a
director of Ashland Inc., Millipore Corporation and GEICO Corporation.
Mr. Butler is a trustee of the New York Public Library and of the Culver
Educational Foundation.
Peter O. Crisp has been general partner of Venrock Associates since
1969. He is also a director of Apple Computer, Inc., American
Superconductor Corporation, Evans & Sutherland Computer Corp., Long
Island Lighting Company, Inc., Thermedics Inc., Thermo Electron Corp.,
Thermo Power Corporation and ThermoTrex Corp. Mr. Crisp serves as a
member of the Board of Managers of Memorial Sloan-Kettering Cancer
Center, Memorial Hospital for Cancer and Allied Diseases and Sloan-
Kettering Institute for Cancer Research. He is a trustee of North Shore
University Hospital and of the Teagle Foundation.
Daniel P. Davison was chairman of the board of Christie, Manson &
Woods International, Inc. from February 1990 to January 1, 1994. He
-24-
<PAGE>
Directors (Cont'd.)
- ---------
served as president of the Corporation and the Trust Company from the
spring of 1979 until June 1, 1986, as chief executive officer from
January 1, 1981 through January 1990 and as chairman of the board from
February 1, 1982 until his retirement in February 1990. Prior to
joining the Corporation, he was associated with Morgan Guaranty Trust
Company for 23 years, serving as corporate secretary, general manager of
its London office and, in his final position, as executive vice
president in charge of the National Bank Division. Mr. Davison is also
a director of The Atlantic Companies, Burlington Northern, Inc.,
Christies International, plc and Prime Property Inc. He is a trustee
and treasurer of the Florence Gould Foundation. Mr. Davison is also
vice chairman and governor of The Nature Conservancy and trustee of the
Waterfowl Foundation.
Philippe de Montebello has been associated with the Metropolitan
Museum of Art since 1963, serving as associate curator for European
paintings from 1963 to 1969, vice director for curatorial and
educational affairs from 1974 to 1977 and as director since 1978. In
the interim of his duties at the Metropolitan, Mr. de Montebello served
as director of the Museum of Fine Arts in Houston from 1969 to 1974. He
is a member of the Advisory Board of the Skowhegan School of Painting
and Sculpture and the Columbia University Advisory Council-Departments
of Art History and Archaeology. Mr. de Montebello is a trustee of the
New York University Institute of Fine Arts and the American Federation
of Arts.
Paul W. Douglas retired as chairman of the board and chief
executive officer of The Pittston Company in September 1991. Prior to
joining Pittston in January 1984, he had been associated with Freeport-
McMoRan Inc. following the merger of Freeport Minerals Company and
McMoRan Oil and Gas Company in April 1981. Formerly, he was director of
the internal finance section of the ECA Mission to France. Mr. Douglas
is also a director of Holmes Protection Group, Inc., MacMillan Bloedel
Limited of Vancouver, B.C., New York Life Insurance Company, Phelps
Dodge Corporation, Philip Morris Companies, Inc. and South American Gold
and Copper Co. He is a member of The Council on Foreign Relations, Inc.
and a trustee of The International Center for the Disabled and of St.
Luke's-Roosevelt Hospital.
Edwin D. Etherington was president and chief executive officer of
the American Stock Exchange from 1962 to 1966 and president of Wesleyan
University from 1966 to 1970. Earlier, after practicing law in
Washington, D.C. and New York City, he was vice president of the New
York Stock Exchange and, subsequently, a general partner of Pershing &
-25-
<PAGE>
Directors (Cont'd.)
- ---------
Co. Mr. Etherington was president (1971) and chairman (1972) of the
National Center for Voluntary Action and for two years was chairman of
the National Advertising Review Board. He is a director of Automatic
Data Processing, Inc. and a trustee of The Schumann Foundation. He also
serves as honorary chairman of the Lymes' Youth Service Bureau and of
the Hobe Sound Child Care Center.
Antonia M. Grumbach joined the law firm of Patterson, Belknap, Webb
& Tyler in 1971 and became a partner of the firm in 1979. She is
currently serving as managing partner of the firm. She is vice chairman
of the board of trustees of Teachers College-Columbia University, and a
trustee of Milton Academy, the CUNY Graduate Center Foundation, the
William T. Grant Foundation and The Henfield Foundation. Ms. Grumbach
also served as an initial member of the Board of Advisors of the New
York University program on philanthropy and the law.
Frederic C. Hamilton serves as chairman of the board, president and
chief executive officer of Hamilton Oil Company, Inc., chairman of the
board of BHP Petroleum, and chairman of the board of Tejas Gas
Corporation. He is also a director of the American Petroleum Institute
and a member of the National Petroleum Council. Mr. Hamilton is
chairman of the Denver Art Museum Foundation and of the Denver Art
Museum, and a trustee of the Boys' Club Foundation and the Boy Scouts of
America Denver Area Council.
Peter L. Malkin joined the predecessor law firm of Wien, Malkin &
Bettex in 1958 and became a partner in the firm in 1962. He is also
chairman of W & M Properties, Inc. and is a general partner in the
ownership of several New York City buildings, including the Empire State
Building, the Graybar Building, the Lincoln Building, 1185 Avenue of the
Americas, and One Penn Plaza. Mr. Malkin is founding chairman of the
Grand Central Partnership and of the 34th Street Partnership, a director
of the New York City Chamber of Commerce & Industry, a member of the New
York City Partnership, a member of the Board of Overseers of Harvard
College and a director and member of the Executive Committee of Lincoln
Center for the Performing Arts.
Jeffrey S. Maurer joined the Trust Company in 1970 and was made
manager of the Asset Management and Private Banking Group in 1988. He
was elected senior vice president in November 1980, executive vice
president in May 1986 and president effective February 1990, and was
designated chief operating officer in December of 1994. Mr. Maurer is a
trustee of Alfred University, a director and treasurer of The Children's
Health Fund, a director of The Hebrew Home for the Aged, a member of the
Advisory Board of The Salvation Army of Greater New York and chairman of
-26-
<PAGE>
Directors (Cont'd.)
- ---------
the Commerce and Industry Division of the Greater New York Israel Bond
Campaign.
Orson D. Munn was senior vice president and chief investment
officer of Madison Fund, Inc. from May 1981 through February 1983 and
was president of Orson Munn, Inc. from February 1983 until the
organization of Munn, Bernhard & Associates, Inc. in November 1990.
Previously, he was president of Piedmont Advisory Corporation and, upon
its merger in 1980 with Lexington Management Corporation, performed the
duties of vice chairman and chief investment officer. Earlier, Mr. Munn
was associated with Wood Walker & Co. for 20 years, serving as chief
executive officer of the company from 1972 to 1974. Mr. Munn is a
trustee of the Waterfowl Research Foundation and is a former member of
the Financial Advisory Committee of the Garden Club of America, a former
trustee of the Village of Southampton and a former director of numerous
charities.
Donald M. Roberts was elected treasurer of the Corporation in
January 1989 and vice chairman effective February 1, 1990. He is head
of the Trust Company's Institutional Services Group. Prior to joining
the Trust Company in 1979, he was associated with Citibank for 22 years
serving as senior vice president from 1974 to 1979. Mr. Roberts is also
a director of York International Corporation, Burlington Resources, Inc.
and the New York Road Runners Club, Inc. He is president of the Board
of Trustees of St. Bernard's School, and a member of The Bridge Fund
Advisory Board.
H. Marshall Schwarz joined the Trust Company in 1967 after a seven-
year association with Morgan Stanley & Co. In 1972, he was elected a
senior vice president and head of the Banking Division. He was elected
executive vice president and chief operating officer of the Trust
Company's Bank Group in 1977 and chief operating officer of the Asset
Management Group in 1979. Mr. Schwarz served as president of the
Corporation and the Trust Company from June 1986 through January 1990
and became chairman and chief executive officer effective February 1,
1990. He is also a director of Atlantic Mutual Companies and Bowne &
Co., Inc. Mr. Schwarz is chairman of the board of the American Red
Cross in Greater New York and a director of the United Way of New York
City. He is a trustee of Teachers College-Columbia University, Milton
Academy, the Camille and Henry Dreyfus Foundation, Inc. and The Boys'
Club of New York.
Philip L. Smith has been chairman of the board and director of the
Golden Cat Corporation since November 1990. He was chairman of the
board, president and chief executive officer of The Pillsbury Company
-27-
<PAGE>
Directors (Cont'd.)
- ---------
from August 1988 through January 1989. Formerly, he had been associated
with General Foods Corporation for over 20 years, serving in his final
position as chairman of General Foods and director of Philip Morris
Companies, Inc. Mr. Smith is also a director of Whirlpool Corporation
and Ecolab Corporation.
John Hoyt Stookey served as president of Quantum Chemical from 1975
to 1993 when Quantum was acquired by Hanson Industries, Inc. He
continues as chairman of the board of Quantum, a position he has held
since 1986. As Chairman of Quantum, Mr. Stookey served from 1989 to
1993 as an executive officer of Petrolane Incorporated, Petrolane
Finance Corp. and QJV Corp., affiliates of Quantum, which companies were
reorganized on July 15, 1993 under the U.S. Bankruptcy Code. Prior to
joining Quantum, Mr. Stookey was president of Wallace Clark Incorporated
from 1969 to 1975 and served as the U.S. Representative to both private
and public banks in Mexico. He is also a director of Cypress AMAX
Minerals Co., ACX Technologies and Chesapeake Corporation. Mr. Stookey
is the founder and president of The Berkshire Choral Institute and of
Landmark Volunteers, and trustee of the Glimmerglass Opera, Berkshire
School, The Clark Foundation and The Robert Sterling Clark Foundation.
Frederick B. Taylor joined the Trust Company in 1966. In 1980, he
was elected a senior vice president and, in 1986, he was elected an
executive vice president of the Corporation and chairman, Investment
Policy of the Trust Company. Mr. Taylor was elected vice chairman and
chief investment officer effective February 1990. He is a member of the
New York Society of Security Analysts and the Association for Investment
Management and Research. Mr. Taylor serves on the board of counselors
of White Plains Hospital and on the senior advisory board of the New
York Chapter of the Arthritis Foundation.
Richard F. Tucker joined Mobil Corporation in 1961 and retired as
vice chairman in May 1991. He was a director of Mobil from 1971, and
president and chief operating officer of Mobil Oil Corporation from 1986
until his retirement. Mr. Tucker is also a director of The Perkin-Elmer
Corporation. He is trustee emeritus of Cornell University and a life
member of the Board of Overseers of Cornell Medical College. He is also
a trustee of the Aldrich Museum of Contemporary Art, The Teagle
Foundation and the Norwalk Hospital. Mr. Tucker is a member of the
National Academy of Engineering, The Council on Foreign Relations, Inc.
and the Woods Hole Oceanographic Institution.
Carroll L. Wainwright, Jr. joined the law firm of Milbank, Tweed,
Hadley & McCloy in 1952. After serving as assistant counsel to the
Governor of New York from 1959 through 1960, he returned to the firm,
-28-
<PAGE>
Directors (Cont'd.)
- ---------
becoming a partner in 1963, a senior partner in 1986 and a consulting
partner in 1991. Mr. Wainwright is a trustee of the American Museum of
Natural History, trustee and vice chairman of The Cooper Union for the
Advancement of Science and Art and trustee and former president of The
Boys' Club of New York. He is also an adjunct professor at Washington
and Lee University Law School, a trustee of the Edward John Noble
Foundation, and member of the Distribution Committee of The New York
Community Trust.
Robert N. Wilson joined Johnson & Johnson in 1964. He was
appointed to the Executive Committee in 1983 and was elected to the
board of directors in 1986. Mr. Wilson has been vice chairman of the
board of directors of Johnson & Johnson since 1989. He is a member of
the Board of Directors of the Pharmaceutical Research and Manufacturers
Association, of the Alliance for Aging Research and The Georgetown
College Foundation, Inc. He also serves as a trustee of the Museum of
American Folk Art and is a member of the Trilateral Commission. He is a
director of The James Breck Foundation in London, England.
Frederick S. Wonham joined the Trust Company in 1979 as a senior
vice president, and was head of the Personal Asset Management Division
until 1982, when he was elected executive vice president and appointed
manager of the Planning, Administration and Computer Services Group. He
was elected vice chairman effective February 1990 and is head of the
Funds Services Group. Between 1974 and 1978, Mr. Wonham was associated
with White Weld and Co., Incorporated serving as president and chief
operating officer from 1975 through 1978. Earlier, he was associated
with G.H. Walker & Co., Incorporated for 19 years, serving as president
and chief executive officer from 1971 to 1974. Mr. Wonham is a trustee
of the Provident Loan Society.
Ruth A. Wooden became president and chief executive officer of The
Advertising Council in August 1987. Prior to joining The Advertising
Council, she was employed with NW Ayer, Inc. for eleven years.
Ms. Wooden serves as a trustee of The Edna McConnell Clark Foundation
and of St. Luke's Roosevelt Hospital Center. She is vice chair of CARE,
USA and an advisor to the Columbia Health Sciences Advisory Council and
the Columbia University School of Public Health Advisory Council.
-29-
<PAGE>
Executive Officers
- ------------------
<TABLE>
Name Age Business Experience
---- --- -------------------
<S> <C> <C>
H. Marshall Schwarz 58 Chairman of the Board and Chief
Executive Officer (since February
1990) of the Corporation and of the
Trust Company.
Jeffrey S. Maurer 47 President (since February 1990) and
Chief Operating Officer (since
December 1994) of the Corporation and
of the Trust Company.
Donald M. Roberts 59 Vice Chairman (since February 1990)
and Treasurer (from prior to March
1990) of the Corporation and of the
Trust Company.
Frederick B. Taylor 53 Vice Chairman and Chief Investment
Officer (since February 1990) of the
Corporation and of the Trust Company.
Frederick S. Wonham 63 Vice Chairman (since February 1990)
of the Corporation and of the Trust
Company.
</TABLE>
Item 11. Executive Compensation
- -------- ----------------------
Compensation of Directors
- -------------------------
Each director of the Corporation who is not also an officer of the
Corporation or of the Trust Company receives an annual retainer fee of
$15,000 and an attendance fee of $1,000 for each meeting attended of the
Corporation Board, of the Board of Trustees, and of the committees of
the respective Boards, other than those mentioned in the following
paragraph, in which cases no attendance fee is applicable. If the
Boards or the Executive Committee of the Corporation and the Trust
Company meet on the same day, only one fee will be paid to a director-
trustee for attendance at both meetings. Under the Stock Plan for Non-
Officer Directors, each director of the Corporation who is not also an
officer of the Corporation or of the Trust Company receives 100 Shares
of Corporation Common Stock each February as an additional part of his
or her annual retainer fee.
-30-
<PAGE>
Compensation of Directors (Cont'd.)
- -------------------------
The Chairman of the Audit Committee receives an annual retainer of
$12,500 and each member of such committee receives an annual retainer of
$10,000. The Chairman of the Compensation Committee receives an annual
retainer of $10,000 and each member of such committee receives an annual
retainer of $7,000. All directors and trustees are reimbursed for
travel and other out-of-pocket expenses incurred by them in attending
board or committee meetings.
Directors who are not also officers of the Corporation or of the
Trust Company may defer cash compensation (including meeting attendance
fees) for services rendered as directors of the Corporation or as
trustees of the Trust Company or as members of any Corporation or Trust
Company Board committee. Under the Board Members' Deferred Compensation
Plan certain provisions applicable to amounts so deferred are identical
to provisions applicable to deferred performance share unit awards under
the 1989 Stock Compensation Plan of U.S. Trust Corporation. These
include provisions relating to (i) conversion of the deferred amounts
into phantom share units or allocation of such amounts to interest-
bearing accounts, (ii) crediting of dividend equivalents or earnings to
such deferred amounts, and (iii) the form and time of distributions with
respect to such deferred amounts. See "Executive Compensation Plans -
Other Features of Stock Plan and Predecessor Performance Plans -
Performance Share Units."
Directors who are not also officers of the Corporation or of the
Trust Company who retire from the Corporation Board at age 72 with 10 or
more years of service on any of the Boards of the Corporation or the
Trust Company will be paid an annual retirement benefit for life equal
to the annual retainer received as a member of such Boards in his or her
last full year of membership on such Boards. Directors with less than
10 years of service who retire at age 72 and directors with 15 or more
years of service who retire prior to age 72 will be paid the same annual
benefit for the lesser of the number of years he or she served on such
Boards or his or her lifetime.
Under the Stock Option Plan for Non-Employee Directors of U.S.
Trust Corporation (the "Directors Plan"), a maximum of 125,000 Common
Shares of the Corporation are reserved for grants of options to members
of the Board of Directors who are not full-time employees of the
Corporation, the Trust Company or any of their affiliated companies, who
have not been such full-time employees for the previous two years and
who have never been members of the Board of Directors while being
employed full-time by the Corporation, the Trust Company or any of their
affiliated companies (the "Non-Employee Directors"). Each person who
either was a Non-Employee Director at the time of the adoption of the
-31-
<PAGE>
Compensation of Directors (Cont'd.)
- -------------------------
Directors Plan in April 1989 or who subsequently became a Non-Employee
Director has been granted an option to purchase 5,000 Common Shares.
Each person who hereafter becomes a Non-Employee Director will be
granted an option, effective on the date of becoming a Non-Employee
Director, to purchase 5,000 Common Shares, subject to reduction in the
event of an insufficiency of available shares under the Directors Plan.
Options granted under the Directors Plan are granted for a period
of ten years. The exercise price per share is the fair market value, as
defined in the Directors Plan, of a Common Share on the date of grant.
Each option becomes exercisable in three equal, cumulative installments
on each of the first three anniversary dates of the date the option was
granted. Except in the event of a "change in control" of the
Corporation, as defined in the Directors Plan, full payment of the
exercise price for shares subject to an option must be made in cash at
the time of exercise.
In the event of a change in control of the Corporation, all options
under the Directors Plan will be accelerated and become fully
exercisable, and optionees will be permitted to pay the exercise price
in cash, or in Common Shares of the Corporation valued at their then
fair market value, or a combination of cash and Common Shares. In
addition, all options that were granted at least six months prior to the
date of such change in control will be cancelled in return for a cash
payment equal to the excess of the aggregate Determined Value (as
defined in the Directors Plan) of the Common Shares subject to the
option over the aggregate option exercise price of such Common Shares.
The Board of Directors may direct that any of the foregoing change in
control provisions not become effective by adopting a resolution to such
effect prior to the date of a change in control (or not later than 45
days thereafter in certain circumstances).
Compensation of Executive Officers
- ----------------------------------
The following table sets forth certain information concerning the
compensation paid during 1994, 1993 and 1992 to the Corporation's Chief
Executive Officer and the four other most highly compensated executive
officers (during 1994) (the "Named Executive Officers") for services
rendered in all capacities to the Corporation and to the Trust Company
and their affiliates, based on salary and bonus earned during 1994.
-32-
<PAGE>
Summary Compensation Table
- --------------------------
<TABLE>
Annual Long-Term Compensation
Compensation --------------------------------
--------------------------------- Awards Payouts
Other -------------------- ---------
Annual Restricted Stock Long-Term All Other
Compen- Stock Option Incentive Compen-
Name and Principal Salary Bonus sation Awards Awards Payouts sation
Position Year ($) ($) ($) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H.M. Schwarz 1994 547,308 257,635 0 0 15,000 465,099 33,177
Chairman, CEO 1993 517,308 304,135 0 0 10,000 545,015 89,641
1992 485,192 305,740 0 0 0 221,688 28,451
J.S. Maurer 1994 401,539 169,923 0 0 10,000 316,316 23,913
President, COO 1993 381,538 205,923 0 0 6,000 370,669 61,175
1992 359,423 212,029 0 0 15,000 150,617 20,737
F.B. Taylor 1994 371,539 151,423 0 3,500 9,000 262,554 21,428
Vice Chairman, 1993 351,539 187,423 0 0 5,000 307,670 48,860
Chief Investment 1992 329,423 183,529 0 0 12,000 126,057 18,527
Officer
D.M. Roberts 1994 337,769 133,112 0 0 5,000 258,387 56,941
Vice Chairman, 1993 327,769 153,612 0 0 5,000 302,785 455,892
Treasurer 1992 316,923 159,154 0 0 0 126,057 44,726
F.S. Wonham 1994 337,769 133,112 0 0 5,000 258,387 30,224
Vice Chairman 1993 327,769 153,612 0 0 5,000 302,785 162,723
1992 316,923 159,154 0 0 0 126,057 25,462
</TABLE>
The following table lists for each of the Named Executive Officers
the payments that comprise the "All Other Compensation" amounts found in
the Summary Compensation Table.
-33-
<PAGE>
All Other Compensation
- ----------------------
<TABLE>
Employer Supplemental Earnings on
Contribution ESOP Deferred
to ESOP(1) Amount (2) Awards (3) Total (4)
Name Year ($) ($) ($) ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
H.M. Schwarz 1994 7,500 19,865 5,812 33,177
J.S. Maurer 1994 7,500 12,577 3,836 23,913
F.B. Taylor 1994 7,500 11,077 2,851 21,428
D.M. Roberts 1994 7,500 9,388 40,053 56,941
F.S. Wonham 1994 7,500 9,388 13,336 30,224
(1) Represents the amount of the employer contribution made to the ESOP portion of the 401(k) Plan and ESOP on behalf
of each of the Named Executive Officers for the year indicated.
(2) Represents the amount of the employer contribution, otherwise required under the ESOP portion of the 401(k) Plan
and ESOP, that could not be made to the Plan on behalf of the Named Executive Officers for 1994 due to certain
limitations imposed under the Internal Revenue Code of 1986 (the "Code Limitations"). This amount is credited
to the officer's account under the Corporation's Executive Deferred Compensation Plan, and payment is deferred
until termination of the officer's employment. See "Executive Compensation Plans - Executive Deferred Compensation
Plan" below for a description of the Executive Deferred Compensation Plan.
(3) Represents that portion of the interest accrued on certain previously deferred incentive plan cash awards which is
"above market" interest as defined in the rules of the Securities and Exchange Commission.
</TABLE>
Stock Options
- -------------
The following table sets forth certain information concerning
options granted during 1994 to the Named Executive Officers, including
potential gains that these officers would realize under two stock price
growth-rate assumptions compounded annually. Under the 5% growth-rate
assumption, the indicated values would be realized if the stock price
reached $83.48 per share at the end of the option term (10 years from
grant). Correspondingly, under the 10% growth-rate assumption, the
indicated values would be realized if the stock price reached $132.93
per share.
-34-
<PAGE>
Option Grants in 1994
- ---------------------
<TABLE>
Individual Grants
--------------------------------------------------------- --------------------------
Number of % of Total Potential Realizable Value
Securities Options Exercise Price at Assumed Annual Rates of
Underlying Granted to per Share Stock Price Appreciation
Options Employees (Market Price for Options Term (1)
Granted(2) in at Date of Expiration --------------------------
Name (# of Shares) Fiscal Year Grant) ($) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
H.M. Schwarz 15,000 7.7 51.25 01/25/04 483,450 1,225,200
J.S. Maurer 10,000 5.1 51.25 01/25/04 322,300 816,800
F.B. Taylor 9,000 4.6 51.25 01/25/04 290,070 735,120
D.M. Roberts 5,000 2.6 51.25 01/25/04 161,150 408,400
F.S. Wonham 5,000 2.6 51.25 01/25/04 161,150 408,400
(1) Annual growth-rate assumptions are prescribed by rules of the Securities and Exchange Commission and do not reflect
actual or projected price appreciation of U.S. Trust Corporation Common Stock. The actual average annual price
appreciation of U.S. Trust Common Stock over the last ten years was 13.71%.
(2) Options become exercisable in four equal, cumulative installments in each of the first through fourth anniversary
dates of the date of grant (January 25, 1994).
</TABLE>
The following table discloses the aggregated stock option exercises
for each of the Named Executive Officers in the last fiscal year. It
also shows the number of vested and unvested unexercised options and the
value of vested and unvested unexercised in-the-money options.
Aggregated Option Exercises in 1994 and Year-End Option Values
- --------------------------------------------------------------
<TABLE>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Year-End (#) at Year-End ($)(2)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H.M. Schwarz 5,500 176,875.00 58,500/35,000 1,585,050/594,025
J.S. Maurer 2,300 81,075.00 39,450/31,250 1,055,692/556,352
F.B. Taylor 2,550 89,887.50 30,950/25,500 814,850/432,637
D.M. Roberts 3,400 129,304.00 25,500/15,500 727,462/281,137
F.S. Wonham 1,500 48,000.00 20,000/15,500 540,837/281,137
(1) Aggregate market value on the date(s) of exercise less aggregate exercise price.
(2) Total value of unexercised options is based on the difference between aggregate market value of U.S. Trust
Corporation Common Stock at $63.50 per share, the closing price on December 30, 1994, and aggregate exercise price.
</TABLE>
-35-
<PAGE>
Performance Share Units
- -----------------------
The following table sets forth certain information concerning long-
term incentive awards granted during 1994 to the Named Executive
Officers. The awards are granted in the form of performance share units
under the Corporation's 1989 Stock Compensation Plan. See" Executive
Compensation Plans - Other Features of Stock Plan and Predecessor
Performance Plans" below for a further description of these awards.
<TABLE>
Long-Term Incentive Awards Granted In 1994
- ------------------------------------------
Number of Performance Estimated Future Payouts of Performance Share Units
Performance Period Until -----------------------------------------------------
Name Share Units(#) Payout Threshold (#)(1) Target (#)(2) Maximum (#)(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
H.M. Schwarz 6,042 3 years 3,021 6,042 6,042
J.S. Maurer 4,076 3 years 2,038 4,076 4,076
F.B. Taylor 3,420 3 years 1,710 3,420 3,420
D.M. Roberts 3,154 3 years 1,577 3,154 3,154
F.S. Wonham 3,154 3 years 1,577 3,154 3,154
(1) Assumes minimum number of performance share units earned in each performance goal for 1994-96 performance cycle.
(2) Assumes all specified performance targets are reached.
</TABLE>
Executive Compensation Plans
- ----------------------------
Set out below is a description of the principal employee benefit
and compensation plans of the Corporation.
Retirement Benefits
- -------------------
Each of the Named Executive Officers is a participant in the
Employees' Retirement Plan of United States Trust Company of New York
and Affiliated Companies (the "Retirement Plan"). The Retirement Plan
is a defined benefit pension plan which is tax-qualified under
Section 401(a) of the Code. The Retirement Plan provides for payment of
a pension in an annual amount equal to a specified percentage (based on
the length of a participant's credited service up to a maximum of
35 years) of the participant's average base salary for his highest five
consecutive years of base salary during the last ten plan years prior to
retirement or other termination of employment, reduced by a portion of
-36-
<PAGE>
Retirement Benefits (Cont'd.)
- -------------------
the participant's annual Social Security benefit. The table below shows
the estimated annual pension payable under the Retirement Plan's benefit
formula upon retirement at age 65 to persons in specified remuneration
and years-of-service classifications who have elected to receive their
pensions under a straight life annuity option. The amounts shown do not
reflect reductions which would be made to offset Social Security
benefits.
<TABLE>
Highest Consecutive Estimated Annual Pension for Representative
Five-Year Years of Credited Service
Average Base Salary 15 25 35 or More
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$300,000 $101,250 $150,000 $180,000
350,000 118,125 175,000 210,000
400,000 135,000 200,000 240,000
450,000 151,875 225,000 270,000
500,000 168,750 250,000 300,000
550,000 185,625 275,000 330,000
600,000 202,500 300,000 360,000
</TABLE>
The table below sets forth the number of years of credited service
and the average base salary, in each case as of the end of 1994, that
would be taken into account in determining the pension payable under the
Retirement Plan's benefit formula to each of the Named Executive
Officers.
<TABLE>
Average
Years Base
Name of Service Salary
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
H.M. Schwarz 27.9 $496,000
J.S. Maurer 24 366,000
F.B. Taylor 28.6 337,000
D.M. Roberts 15 342,000
F.S. Wonham 15.5 342,000
</TABLE>
The amount of compensation taken into account in determining each
Named Executive Officer's pension under the Retirement Plan's formula,
as shown in the third column of the table above, represents the average
of the rates of base salary in effect for such officer as of the last
day of each of the years 1990 through 1994. In the case of each such
Named Executive Officer, the base salary amounts so taken into account
for the years 1992, 1993 and 1994 differ from the amounts shown in the
"Salary" column of the Summary Compensation Table for these years, in
that the latter amounts represent the base salary actually earned by
-37-
<PAGE>
Retirement Benefits (Cont'd.)
- -------------------
such Named Executive Officer during each such year, rather than the rate
of base salary in effect for such Named Executive Officer at the end of
that year.
The pension amounts otherwise payable from the Retirement Plan are
subject to reduction to the extent necessary to comply with the Code
Limitations. However, in the case of each Named Executive Officer, any
pension amount otherwise payable under the Retirement Plan's benefit
formula that cannot be paid to such Named Executive Officer from the
Retirement Plan because of the Code Limitations will be paid to the
officer under the Company's Benefit Equalization Plan or, in the case of
Messrs. Schwarz, Maurer, Roberts, Taylor and Wonham, under a
supplemental pension agreement which the Corporation has entered into
with each such officer.
401(k) Plan and ESOP
- --------------------
The 401(k) Plan and ESOP is a defined contribution pension plan.
Employees are eligible to become participants in the plan following the
completion of one year of service, except that employees are eligible to
make tax-deferred elective contributions from their base salary
following the completion of three months of service. Contributions
under the 401(k) Plan and ESOP consist of annual employer contributions
made on behalf of the participants under the Plan's ESOP feature ("ESOP
Contributions"), and tax-deferred elective contributions made by the
participants under the 401(k) Plan and ESOP's 401(k) feature ("401(k)
Contributions").
Under the 401(k) feature of the 401(k) Plan and ESOP, a participant
may elect to have a specified percentage of his or her annual award
under the 1990 Annual Incentive Plan of United States Trust Company of
New York and Affiliated Companies (the "1990 Annual Incentive Plan") (or
in the case of participants who are not eligible for awards under the
1990 Annual Incentive Plan, the Incentive Award Plan of United States
Trust Company of New York and Affiliated Companies) and/or a specified
percentage of the participant's base salary, contributed to the 401(k)
Plan and ESOP on his or her behalf as a 401(k) Contribution. All 401(k)
Contributions made on behalf of a participant are paid to a trust fund
maintained under the 401(k) Plan and ESOP and invested as directed by
the participant in one or more of six investment funds, including a fund
designed for investment in the Corporation's Common Stock (the "U.S.T.
Corp. Stock Fund").
The annual ESOP Contribution made to the 401(k) Plan and ESOP on
-38-
<PAGE>
401(k) Plan and ESOP (Cont'd.)
- --------------------
behalf of each participant is generally equal to 5% of such
participant's compensation. In the case of any participant who is a
participant in the 1990 Annual Incentive Plan, the amount of ESOP
contribution to be made for the participant for any year may not exceed
the amount of the participant's award under the 1990 Annual Incentive
Plan for such year. The ESOP feature of the 401(k) Plan and ESOP is
designed to invest in the Corporation's Common Stock. The 401(k) Plan
and ESOP acquired the Corporation's Common Stock with the proceeds of
loans (the "ESOP Loan"), and the shares of the Corporation's Common
Stock so acquired were placed in a suspense account. Each year, shares
so acquired are released to the extent the ESOP Loan is repaid, and the
shares so released are allocated among the individual accounts
maintained for the ESOP participants in proportion to the amounts of
ESOP Contributions made on their behalf for the year. The ESOP Loan is
repaid with dividends on the Corporation's Common Stock acquired with
the ESOP Loan proceeds, and with the ESOP Contribution, to the extent
determined by the 401(k) Plan and ESOP Committee. Each participant
receives full credit for dividends that are paid on the shares of the
Corporation's Common Stock allocated to his or her ESOP account, whether
or not such dividends are used to repay the ESOP Loan. Any ESOP
Contributions and dividends not applied to repay the ESOP Loan are
invested in participants' accounts in the U.S.T. Corp. Stock Fund.
The Code Limitations restrict the amount of the ESOP Contribution
that can be made each year on behalf of any participant. Prior to 1994,
the amount of the ESOP Contribution, which could not be made to the
401(k) Plan and ESOP on behalf of a participant because of such
limitations was provided to the participant through an award of benefit
equalization units under the 1989 Stock Compensation Plan of U.S. Trust
Corporation (the "Stock Plan"). Effective with the ESOP Contribution to
be made to the 401(k) Plan and ESOP Plan for 1994, the portion of any
ESOP Contribution that cannot be so made to the 401(k) Plan and ESOP on
behalf of a participant will be provided to the participant through a
credit to the participant's account under the Executive Deferred
Compensation Plan described below.
A participant's interest in the trust fund under the 401(k) Plan
and ESOP is at all times fully vested. Distributions from the 401(k)
Plan and ESOP become payable upon the participant's retirement, death or
other termination of employment. Withdrawals from the 401(k) portion of
a participant's account may be made after age 59 1/2 or in cases of
hardship. Distributions from the 401(k) Plan and ESOP are made in a
lump sum, or, in certain cases, in annual installments. Such payments
are made in cash, except that any shares of the Corporation's Common
Stock allocated to the participant's account under the ESOP portion of
-39-
<PAGE>
401(k) Plan and ESOP (Cont'd.)
- --------------------
the 401(k) Plan and ESOP, and shares attributable to the portion of the
participant's account that are invested in the U.S.T. Corp. Stock Fund,
may generally be distributed in kind.
Annual Incentive Awards
- -----------------------
The 1990 Annual Incentive Plan provides for annual cash awards to
be earned and paid based on the attainment of annual performance
objectives established by the Compensation Committee at the beginning of
each year. The Compensation Committee has the authority to select the
officers who will be eligible to receive awards, to determine the
maximum amount available for awards each year, to establish the
performance objectives that must be met in order for awards to be earned
and paid, and to determine the extent to which such performance
objectives have been met. In the Compensation Committee's discretion,
the performance objectives may be based on corporate performance, the
participant's individual performance, or a combination of the two.
Awards otherwise earned under the plan for any year are reduced
(i) by the amount of the ESOP Contribution to be made to the 401(k) Plan
and ESOP on the participant's behalf for such year, and (ii) by the
amount credited to the participant's account under the Executive
Deferred Compensation Plan with respect to any portion of the
participant's ESOP Contribution that cannot be made to the 401(k) Plan
and ESOP for such year because of the Code Limitations. Awards that are
earned under the plan are payable in cash after the close of each year,
except to the extent that the participant has elected, instead, to have
any portion of such award contributed on his or her behalf as a 401(k)
Contribution to the 401(k) Plan and ESOP, or to defer any portion of his
or her award under the Executive Deferred Compensation Plan.
The 1989 Stock Compensation Plan
- --------------------------------
The 1989 Stock Compensation Plan (the "Stock Plan") provides for
the award of Common Shares by means of restricted stock, stock options
and performance share units to senior officers of the Corporation, the
Trust Company and their subsidiaries. In addition, the Stock Plan
provides for the grant of benefit equalization units to certain
participants in the 401(k) Plan in order to provide such participants
with the full benefits to which they would have been entitled under the
401(k) Plan benefit formula but for certain limitations imposed by the
Code.
-40-
<PAGE>
The 1989 Stock Compensation Plan (Cont'd.)
- --------------------------------
The Stock Plan currently authorizes the issuance of a maximum of
1,300,000 Common Shares plus the Common Shares previously authorized but
not utilized or reserved for issuance under various predecessor plans.
As of December 30, 1994, there were an aggregate of 343,761 Common
Shares available for future awards under the Stock Plan. The Common
Shares to be distributed under the Stock Plan may be shares held in the
Corporation's treasury, authorized but previously unissued shares or
shares purchased by the Corporation on the open market.
Officers of the Corporation, the Trust Company and their
subsidiaries at or above the rank of Vice President are eligible to be
granted stock options and other awards under the Stock Plan. In
addition, benefit equalization units are automatically credited to
certain participants in the 401(k) Plan, as described below under the
caption "Benefit Equalization Units." The Compensation Committee
selects the officers who will be granted awards and determines the
nature, extent and timing of awards, performance goals and performance
measurement periods and any conditions to be attached to awards.
Currently, there are approximately 500 persons who are eligible to be
granted awards under the Stock Plan, including all five of the Named
Executive Officers.
The Stock Plan provides for the award of options to purchase Common
Shares. The maximum term of all options granted under the Stock Plan is
ten years from the date of grant, and the per share exercise price of
any option may not be less than the fair market value of a Common Share
on the date of grant of the option, as determined by the Compensation
Committee. The Compensation Committee may require that an option under
the Stock Plan be exercised in installments; each presently outstanding
option under the Stock Plan became or becomes exercisable in four
substantially equal, cumulative installments over a four-year period,
subject to the discretion of the Compensation Committee to accelerate an
option in whole or in part upon an optionee's termination of employment
by reason of death, permanent disability or retirement. Payment of the
option exercise price may be made in cash or in other consideration
approved by the Compensation Committee, including Common Shares valued
at their fair market value at the time of exercise.
The following table sets forth information with respect to options
currently outstanding under the Stock Plan. On December 30, 1994, the
closing price of a Common Share on the NASDAQ National Market System was
$63.50.
-41-
<PAGE>
The 1989 Stock Compensation Plan (Cont'd.)
- --------------------------------
<TABLE>
Number of shares
Optionee or group under option
----------------- ----------------
<S> <C>
H.M. Schwarz 93,500
Chairman and CEO
J.S. Maurer 70,700
President and COO
F.B. Taylor 56,450
Vice Chairman and Chief Investment Officer
D.M. Roberts 41,000
Vice Chairman and Treasurer
F.S. Wonham 35,500
Vice Chairman
All executive officers as a group 297,150
(5 persons)
All other employees, including officers other than executive officers 956,209
</TABLE>
Options granted under the Stock Plan are either incentive stock
options meeting the requirements set forth in Section 422 of the Code
("ISOs") or options which do not qualify as ISOs ("nonqualified
options"). For federal income tax purposes, assuming that the shares
acquired by the holder of an ISO are not disposed of within two years
from the date the option was granted or one year from the date the
option was exercised, the Corporation receives no deduction either upon
the grant or the exercise of an ISO or upon a subsequent sale of the
shares by the optionee. The optionee realizes no income for regular
federal income tax purposes either at the time of the grant or the time
of exercise of the ISO. Instead, the optionee realizes income or loss
only upon his or her subsequent sale of the option shares, and the
optionee's income, in the amount of any excess of the sale price over
the option exercise price, will be taxed as long-term capital gain.
If, however, the shares are disposed of within either of the two-
and one-year periods mentioned above (a "disqualifying disposition"),
the excess, if any, of the fair market value of the shares on the date
of exercise over the option exercise price will be treated as ordinary
income to the optionee in the year of the disqualifying disposition. In
addition, if a disqualifying disposition is for more than the fair
market value of the shares on the date of exercise, the excess of the
-42-
<PAGE>
The 1989 Stock Compensation Plan (Cont'd.)
- --------------------------------
amount realized over the fair market value will be treated as a short-
term or long-term capital gain realized by the optionee, depending upon
the length of time the shares are held. If a disqualifying disposition
is for less than the fair market value of such shares on the date of
exercise, the amount treated as ordinary income realized by the optionee
will be limited to the excess of the amount realized over the option
exercise price, and if the disqualifying disposition is for less than
the option exercise price, the optionee will realize no ordinary income,
but rather a short-term or long-term capital loss, depending upon the
length of time the shares are held, equal to the difference between the
option exercise price and the amount realized. The Corporation may be
entitled, in the year of a disqualifying disposition, to a deduction
equal to the amount that the optionee must treat as ordinary income.
The optionee of a nonqualified option does not realize any taxable
income upon the grant of the option. Upon exercise of a nonqualified
option, the optionee realizes ordinary income in an amount generally
measured by the excess, if any, of the fair market value of the shares
on the date of exercise over the option exercise price. The Corporation
will be entitled to a deduction in the same amount as the ordinary
income realized by the optionee. Upon the sale of such shares, the
optionee will realize short-term or long-term capital gain or loss,
depending upon the length of time the shares are held. Such gain or
loss will be measured by the difference between the sale price of the
shares and the market price of the shares on the date of exercise.
An option under the Stock Plan will not be exercisable unless the
optionee has remained in the employ of the Corporation, the Trust
Company or a participating subsidiary for such period after the date of
grant of the option as may be determined by the Compensation Committee.
If the optionee's employment shall terminate (except by reason of death
or disability), the option will be exercisable, to the extent the
optionee was entitled to exercise the option on the date of such
termination, until the earlier of (i) three months after the date of
termination of employment and (ii) the expiration date specified in the
option. This three-month period is extended to twelve months if the
optionee's employment shall terminate by reason of disability, is
extended to two years after death if the optionee's employment shall
terminate by reason of death or if the optionee dies within one year of
retiring as a result of a disability, and may, in the Compensation
Committee's sole discretion, be extended to twelve months if the
optionee ceases to be an employee by reason of retirement. In 1994, the
option exercise period, in the event of the optionee's termination of
employment by reason of retirement was amended to the earlier of the
expiration date specified in the option and the date three months (in
-43-
<PAGE>
The 1989 Stock Compensation Plan (Cont'd.)
- --------------------------------
the case of an ISO) or fifteen months (in the case of a nonqualified
option) after the date of termination of employment. The Compensation
Committee would not have the discretion to extend the option exercise
period.
Other Features of the Stock Plan and Predecessor Performance Plans
- ------------------------------------------------------------------
Apart from the present stock option provisions of the Stock Plan,
the Stock Plan provides for the award of stock-based compensation to
senior officers of the Corporation, the Trust Company and other
subsidiaries in two other forms: in shares of restricted stock and in
performance share units. In addition, for years prior to 1994, benefit
equalization units were awarded to officers to provide them with the
full benefits to which they would have been entitled under the ESOP
portion of the 401(k) Plan and ESOP but for the Code Limitations. The
award of benefit equalization units under the Stock Plan has been
discontinued effective with the contribution to be made to the ESOP
portion of the 401(k) Plan and ESOP for the year 1994.
Restricted Stock
- ----------------
Recipients of awards of shares of restricted stock are prohibited
from selling, pledging or otherwise disposing of such shares within a
period (typically three years) determined by the Compensation Committee.
Restricted shares are held in the officer's name in a book entry
account. During the restricted period, the officer has all of the
rights of a stockholder of the Corporation with respect to his or her
restricted shares, including voting and dividend rights. Subject to
satisfaction of any tax withholding obligation, certificates evidencing
the shares are delivered to the officer free of restrictions at the
conclusion of the restricted period. In the event of the termination of
employment of an officer for any reason, all shares then subject to
restrictions are forfeited unless the Compensation Committee otherwise
determines.
Performance Share Units
- -----------------------
The Stock Plan provides for the grant of performance share units
which are earned over a 3-year "Performance Cycle" to the extent that
-44-
<PAGE>
Performance Share Units (Cont'd.)
- -----------------------
pre-established performance goals for the Corporation are met. Except
for any portion of an earned award that an officer has previously
elected to defer, earned awards are paid as soon as practicable after
the close of the Performance Cycle. Awards that are not deferred are
paid in a combination of cash and the Corporation's Common Stock, as the
Compensation Committee determines, but at least 50% of a non-deferred
award must be paid in the Corporation's Common Stock. Deferred awards
are either converted to "phantom share units" ("PSUs") or credited to
the "Interest Portion" of the officer's account under the plan, as the
officer may elect, but at least 50% of any deferred award must be
converted to PSUs.
Earnings are credited to the Interest Portion of a deferred award
at the Trust Company's prime rate, or at a rate of return matching the
rate of return on any one or more of the investment funds available for
investment of the 401(k) portion of employees' accounts under the 401(k)
Plan and ESOP other than the U.S.T. Corp. Stock Fund, as the officer may
select from time to time. The "PSU Portion" of an officer's deferred
award is credited, as of the date of each dividend payment on the
Corporation's Common Stock, with dividend equivalents in the form of
additional PSU's.
Payments with respect to deferred awards are made in 10 annual
installments commencing in the year following the officer's retirement
or other termination of employment. Payments with respect to the PSU
Portion of a deferred award are made in the form of shares of the
Corporation's Common Stock, and payments with respect to the Interest
Portion of a deferred award are made in cash.
Performance share units were also awarded to officers of the
Corporation and the Trust Company and their subsidiaries under two
predecessor plans: the 1988 Long-Term Performance Plan of U.S. Trust
Corporation and the Long-Term Performance Plan of U.S. Trust Corporation
(collectively, the "Predecessor Performance Plans"). The provisions of
the Predecessor Performance Plans are substantially the same as those
applicable to the performance share unit feature of the Stock Plan. No
Performance Cycles remain in progress under the Predecessor Performance
Plans. However, deferred awards remain outstanding under these plans,
in the form of PSU's and account balances that are credited with
interest under substantially the same provisions as described above in
the case of the "Interest Portion" of deferred awards under the Stock
Plan.
Each performance share unit and each PSU credited to an officer
under the Stock Plan and the Predecessor Performance Plans represents
-45-
<PAGE>
Performance Share Units (Cont'd.)
- -----------------------
one share of the Corporation's Common Stock, but constitutes only a
"phantom" share. It entitles the holder to be credited with dividend
equivalents and to receive one share of the Corporation's Common Stock
for each such unit to the officer's credit when distributions are made
to the officer from the plan, but it does not otherwise entitle the
officer to any of the rights of a holder of the Corporation's Common
Stock.
Benefit Equalization Units
- --------------------------
For years prior to 1994, the Stock Plan provided for awards to
officers of benefit equalization units ("BEUs") with an aggregate value
equal to the amount of the ESOP contribution that could not be made to
the 401(k) Plan and ESOP on the officer's behalf for any year because of
the Code Limitations. The BEUs earn dividend equivalents with respect
to dividends that are paid on the Corporation's Common Stock, and the
dividend equivalents attributable to an officer's BEUs are credited to
the officer in the form of additional BEUs. An officer's interest in
the BEUs credited to his account under the plan is fully vested at all
times. Officers receive a distribution with respect to their BEUs upon
the termination of their employment. Distribution is made in the form
of shares of the Corporation's Common Stock, and cash for fractional
units.
Each BEU credited to an officer represents one share of the
Corporation's Common Stock, but constitutes only a "phantom" share. It
entitles the holder to be credited with dividend equivalents and to
receive one share of the Corporation's Common Stock for each such unit
to the officer's credit when distributions are made to the officer from
the plan, but it does not otherwise entitle the officer to any of the
rights of a holder of the Corporation's Common Stock.
Executive Deferred Compensation Plan
- ------------------------------------
The Executive Deferred Compensation Plan of U.S. Trust Corporation
(the "Executive Deferred Compensation Plan") is a nonqualified plan of
deferred compensation. All officers at or above the rank of Vice
President whose total annual compensation (as defined in the plan)
exceeds $150,000 are eligible to participate in the plan. The plan
permits each eligible officer to elect to defer portions of the
officer's award for any year under the 1990 Annual Incentive Plan and a
-46-
<PAGE>
Executive Deferred Compensation Plan (Cont'd.)
- ------------------------------------
portion of certain other incentive payments. The Executive Deferred
Compensation Plan also provides for the crediting to an eligible
officer's account under the plan of amounts equal to the portion of the
ESOP contribution for 1994 or any later year that cannot be made on the
officer's behalf to the 401(k) Plan and ESOP because of the Code
Limitations.
A participant's deferred amounts under the Executive Deferred
Compensation Plan are credited with interest at rates of return chosen
by the participant from among the rates of return on the investment
funds available for investment of the 401(k) portion of employees'
accounts under the 401(k) Plan and ESOP other than the U.S.T. Corp.
Stock Fund.
Deferred amounts under the Executive Deferred Compensation Plan
become payable upon a participant's termination of employment. Payment
of deferred amounts generally will be made in a single cash lump sum.
However, if employment is terminated by reason of retirement or death
and the participant has so elected, payment will be made in ten annual
cash installments. In the case of amounts payable upon retirement, a
participant also may elect to receive payment in 15 annual cash
installments.
Change in Control Provisions
- ----------------------------
Various compensation and benefit plans under which the Named
Executive Officers will be covered will contain provisions pursuant to
which payment of the benefits provided under the plan would be
accelerated in the event of a "change in control" of the Corporation (as
defined in the Stock Plan), unless the Corporation's Board otherwise
determines prior to the date of the change in control (or not later than
45 days thereafter in certain circumstances). As defined in the Stock
Plan, a "change in control" means that any of the following events has
occurred: (i) 20% or more of the shares of the Corporation's Common
Stock have been acquired by any person (as defined in Section 3(a)(9) of
the Exchange Act) other than directly from the Corporation; (ii) there
has been a merger or equivalent combination after which 49% or more of
the voting stock of the surviving corporation is held by persons other
than former stockholders of the Corporation; or (iii) 20% or more of the
directors elected by stockholders to the Corporation's Board are persons
who were not nominated by management in the most recent proxy statement
of the Corporation.
-47-
<PAGE>
Change in Control Provisions (Cont'd.)
- ----------------------------
Specifically, upon such a change in control (a) the restrictions
applicable to all restricted stock previously awarded under the Stock
Plan would lapse, and a cash payment would be made for each share of
restricted stock equal to the Determined Value (as defined in the Stock
Plan) of a share of the Corporation's Common Stock; (b) each new stock
option granted under the Stock Plan at least six months prior to the
change in control would be cancelled in return for a cash payment equal
to the excess of the Determined Value of the shares of the Corporation's
Common Stock subject to the option over the aggregate purchase price of
such shares under the terms of the option; (c) all other new stock
options outstanding under the Stock Plan would become immediately and
fully exercisable; (d) all performance share units awarded under the
Stock Plan for the performance cycle in which the change in control
occurs would be deemed to have been earned in full, and a cash payment
would be made for each such performance share unit in an amount equal to
the Determined Value of a share of the Corporation's Common Stock;
(e) all previously deferred awards of performance share units under the
Stock Plan would become immediately payable in the form of a cash
payment in an amount equal to the sum of the Interest Portion (as
defined in the Stock Plan) of such awards and the Determined Value of
the number of shares of the Corporation's Common Stock corresponding to
the number of units included in the Phantom Share Unit Portion (as
defined in the Stock Plan) of such awards; (f) all benefit equalization
units previously granted under the Stock Plan would become immediately
payable in the form of a cash payment in an amount equal to the
Determined Value of the number of shares of the Corporation's Common
Stock corresponding to the number of benefit equalization units
credited to the participant; (g) all awards under the 1990 Annual
Incentive Plan for the year in which the change in control occurs would
be deemed to have been earned in full, and would be immediately payable
in the form of a cash payment; and (h) the balance of each participant's
account under the Executive Deferred Compensation Plan would become
immediately payable in full in the form of a cash payment.
The Retirement Plan provides that if the Retirement Plan is
terminated within four years after the occurrence of a change in
control, any surplus funding in the Retirement Plan would be applied
(subject to applicable Code and other tax qualification requirements
applicable to the Retirement Plan) to provide pro rata increases in the
accrued pension benefits of all qualified participants in the Retirement
Plan, including the Named Executive Officers.
The supplemental pension agreements with each of the Named
Executive Officers provide that in the event of the involuntary
termination of any such officer's employment following a change in
-48-
Change in Control Provisions (Cont'd.)
- ----------------------------
control, such officer would receive from the Corporation an immediate
lump sum cash payment equal to the actuarial present value of the
supplemental pension that would have been payable to such officer under
the agreement at his normal retirement date if he had remained employed
with the Corporation until that date, at the rate of annual compensation
in effect for such officer immediately prior to such termination of his
employment.
In addition, under the 1990 Change in Control and Severance Policy,
each of the Named Executive Officers would be entitled to receive
severance benefits in the event of any such Named Executive Officer's
involuntary termination of employment within two years following a
change in control. In such event, each such Named Executive Officer
would be entitled to receive a cash payment in an amount equal to the
sum of (a) two times such Named Executive Officer's then current annual
base salary, (b) the average of the highest three of the previous five
years awards to such Named Executive Officer under the 1990 Annual
Incentive Plan and predecessor plan and (c) 25 times such Named
Executive Officer's then current weekly base salary.
Benefit Protection Trusts
- -------------------------
The Corporation has established the U.S. Trust Corporation Benefits
Protection Trust I and the U.S. Trust Corporation Benefits Protection
Trust II, and the Trust Company has established the United States Trust
Company of New York and Affiliated Companies Executives Benefits
Protection Trust, for the purposes of assisting the Corporation and the
Trust Company in meeting their obligations under certain of the benefit
and compensation plans maintained by them. The U.S. Trust Corporation
Benefits Protection Trust I also will cover benefits payable under the
Board Members' Deferred Compensation Plan with respect to the "Interest
Portion" of a board member's deferred amounts under that plan.
Upon the occurrence of a change in control, the trust funds would
be used to make benefit payments to the officers and board members in
accordance with the provisions of the applicable plans and the trust
agreements. However, at all time prior to payment to the officers and
board members, all assets held in the trusts will remain subject to the
claims of the Corporation's and the Trust Company's respective
creditors.
The trusts are intended to qualify as "grantor trusts" with the
meaning of the Code, with the consequence that the Corporation and the
-49-
<PAGE>
Benefit Protection Trusts (Cont'd.)
- -------------------------
Trust Company will be treated as owners of all of the assets and income
of the trusts for federal income tax purposes. No contributions have
been made to the trusts as yet.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
---------------------------------------------------
The following table sets forth information regarding the beneficial
ownership of the Corporation's Common Stock as of December 30, 1994, by
(i) each person known by the Corporation to own more than five percent
of either class of the outstanding Corporation Common Stock, (ii) each
director of the Corporation, (iii) each of the named executive officers
of the Corporation and (iv) all directors and executive officers as a
group. Unless otherwise noted, the persons named in the table have sole
voting and investment power with respect to all shares of the
Corporation's Common Stock shown as beneficially owned by them.
<TABLE>
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- --------
<S> <C> <C>
401(k) Plan and ESOP of United States 1,335,133 shares (in a 14.13
Trust Company of New York and fiduciary capacity) (1)
and Affiliated Companies
114 West 47th Street
New York, New York 10036
GeoCapital Corporation 618,750 shares (with sole 6.55
767 Fifth Avenue dispositive power) (2)
New York, New York, 10158
United States Trust Company of New 354,139 shares (in fiduciary 3.75
York and Affiliated Companies and agency capacities (3)
114 West 47th Street
New York, New York 10036
Eleanor Baum 300 (4)(5)
Samuel C. Butler 7,730 (4)(5)(6)
Peter O. Crisp 700 (4)(5)
Daniel P. Davison 48,095 (7)
Philippe de Montebello 800 (4)
Paul W. Douglas 1,837 (4)(5)
Edwin D. Etherington 8,150
Antonia M. Grumbach 1,300 (4)
</TABLE>
-50-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
- -------- Management (Cont'd.)
---------------------------------------------------
<TABLE>
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- --------
<S> <S> <S>
Frederic C. Hamilton 30,825 (4)
Peter L. Malkin 1,200 (4)
Jeffrey S. Maurer 19,436 (7)(8)(9)
Orson D. Munn 9,500 (4)(10)
Donald M. Roberts 35,377 (7)(8)(9)
H. Marshall Schwarz 33,625 (8)(9)
Philip L. Smith 5,800
John Hoyt Stookey 5,800 (4)
Frederick B. Taylor 26,748 (7)(8)(9)(11)
Richard F. Tucker 3,325 (4)(5)
Carroll L. Wainwright, Jr. 3,600 (4)(7)
Robert N. Wilson 950 (4)
Frederick S. Wonham 30,404 (7)(8)(9)
Ruth A. Wooden 200 (4)(5)
All directors and executive officers
as a group (numbering 22 as a group) 275,702 2.92
_______________
(1) These shares consist of 1,058,834 shares allocated or attributable to the individual accounts of participants in
the 401(k) Plan and ESOP, who have voting and dispositive power over such shares, and 276,299 shares which have
not been allocated to participant accounts, as to which shares the Trust Company, as Trustee of the Plan, may be
deemed to have voting and dispositive power. In February 1995, contributions in the aggregate amount of
$4,275,480 were made to the Plan which, under the terms of the Plan, will be used to purchase additional shares of
the Corporation's Common Stock for participants' accounts under the 401(k) portion of the Plan. These shares will
be acquired through purchases in the market. Assuming that the shares are purchased at an average price of
$66 per share, the Plan will hold an additional 64,780 shares of the Corporation's Common Stock as a result of
these contributions. The number of shares set forth in the table above does not include these 64,780 shares.
(2) Information herein with respect to GeoCapital Corporation ("GCC") has been obtained from GCC and from GCC's
filings with the Commission pursuant to Section 13(g) of the Exchange Act by GCC, a registered investment advisor,
and Barry K. Fingerhut and Irwin Lieber, by reason of their ownership interest in GCC. Such filings further
disclose that the shares were acquired in the ordinary course of business and were not acquired for the purpose
of and do not have the effect of changing or influencing the control of the Corporation and were not acquired in
connection with or as a participant in any transaction having such purpose or effect.
(3) The Corporation, the Trust Company and their affiliates have sole voting power as to 16,171 of such shares, shared
voting power as to 42,452 of such shares, sole dispositive power as to 197,237 of such shares and shared
dispositive power as to 156,902 of such shares. Such shares do not include any shares held in the 401(k) Plan and
ESOP. As a matter of policy, the Trust Company and its affiliates vote shares held in an agency capacity only as
</TABLE>
-51-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
- -------- Management (Cont'd.)
---------------------------------------------------
<TABLE>
<S> <C>
directed by customers, and where shares are held as a co-fiduciary, vote such shares as directed by the other co-
fiduciaries. Shares held by the Corporation, the Trust Company and their affiliates as sole fiduciary are not
voted unless specific voting instructions are given by a donor or beneficiary pursuant to the governing trust
instrument.
(4) Does not include shares subject to non-employee director stock options exercisable within 60 days of December 31,
1994 as follows: Dr. Baum and Ms. Wooden each 1,650 shares, Messrs. Crisp and Malkin each 3,350 shares, Mr. Munn
2,000 shares, Mr. Wilson 4,650 shares and 5,000 shares by each of the other non-employee directors (as defined in
the Plan) other than Messrs. Etherington and Smith.
(5) Does not include shares attributable to deferred awards under the Board Members' Deferred Compensation Plan as
follows: Dr. Baum 232 shares, Mr. Butler 8,670 shares, Mr. Crisp 1,232 shares, Mr. Douglas 5,709 shares,
Mr. Tucker 309 shares and Ms. Wooden 179 shares.
(6) Includes 1,250 shares held in a trust of which Mr. Butler is trustee and 4,914 shares held in a trust in which he
has a beneficial interest.
(7) Includes 10,254 shares owned by Mr. Davison's wife, 2,500 shares owned by Mr. Maurer's wife, 638 shares held in
trust by Mr. Maurer's wife for their children, 3,215 shares owned by Mr. Roberts' daughter, 3,989 shares owned by
Mr. Taylor's wife, 300 shares owned by Mr. Wainwright's wife and 2,250 shares owned by Mr. Wonham's children, with
respect to which the director in each case disclaims beneficial ownership.
(8) Does not include shares subject to employee stock options exercisable within 60 days of December 31, 1994 as
follows: Mr. Schwarz 72,250 shares, Mr. Maurer 53,450 shares, Mr. Taylor 41,200 shares, Mr. Roberts 31,750 shares
and Mr. Wonham 26,250 shares.
(9) Does not include shares attributable to deferred awards under the 1989 Stock Compensation Plan and Predecessor
Performance Plans as follows: Mr. Schwarz 78,086 shares, Mr. Maurer 29,008 shares, Mr. Taylor 10,864 shares,
Mr. Roberts 55,186 shares and Mr. Wonham 44,064 shares.
(10) Includes 1,700 shares held in a trust of which Mr. Munn is trustee.
(11) Includes 270 shares held in a trust of which Mr. Taylor is sole trustee and in which he has a beneficial interest.
Other than as set forth above, the Corporation's management is aware of no person who, as of December 31, 1994, was
the beneficial owner of more than 5% of outstanding U.S. Trust Corporation Common Stock. The total number of shares of
U.S. Trust Corporation Common Stock owned by all directors and executive officers of the Corporation as a group
accounted for 790,791 shares (approximately 7.93% of outstanding shares of the Corporation's Common Stock) as of
December 30, 1994.*
_______________
* Includes shares subject to stock options exercisable within 60 days of December 31, 1994, and shares attributable
to deferred awards under the 1989 Stock Compensation Plan and Predecessor Performance Plans and Board Members'
Deferred Compensation Plan.
</TABLE>
-52-
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Samuel C. Butler, a director of the Corporation, is a partner in
the law firm of Cravath, Swaine & Moore, which is counsel to the
Corporation in connection with the transaction with Chase and which
performed services for the Corporation in fiscal year 1994. The
aggregate amount of fees paid by the Corporation to Cravath, Swaine &
Moore was less than 5% of the law firm's gross revenues for the last
fiscal year.
Peter L. Malkin, a director of the Corporation, is a partner in the
law firm of Wien, Malkin & Bettex, which performed services for the
Corporation in fiscal year 1994. The aggregate amount of fees paid by
the Corporation to Wien, Malkin & Bettex was less than 5% of the law
firm's gross revenues for the last fiscal year.
Antonia M. Grumbach, a director of the Corporation, is a partner in
the law firm of Patterson, Belknap, Webb & Tyler, which performed
services for the Corporation in fiscal year 1994. The aggregate amount
of fees paid by the Corporation to Patterson, Belknap, Webb & Tyler was
less than 5% of the law firm's gross revenues for the last fiscal year.
Carroll L. Wainwright, Jr., a director of the Corporation, is a
consulting partner in the law firm of Milbank, Tweed, Hadley & McCloy,
which performed services for the Corporation in fiscal year 1994. The
aggregate amount of fees paid by the Corporation to Milbank, Tweed,
Hadley & McCloy was less than 5% of the law firm's gross revenues for
the last fiscal year.
In addition to the preceding, some of the Corporation's directors
are customers of the Trust Company and some of the directors are
officers of corporations or members of partnerships which are customers
of the Trust Company. As such customers, they have had transactions in
the ordinary course of business with the Trust Company, including
borrowings, all of which were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than
normal risk of collectibility or present other unfavorable features. In
the ordinary course of business, the Trust Company uses the products or
services of a number of organizations with which directors of the
Corporation are affiliated as officers or partners. It is expected that
the Trust Company and the Corporation will in the future have
transactions with organizations with which directors of the Corporation
are affiliated as officers or partners.
-53-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
----------------------------------------------------
(a) (1) Exhibits
--------
Reference is made to the attached Index of Exhibits included
herein on page 55 for a list of the exhibits filed as part of this
Report.
(a) (2) Financial Statements and Schedules
----------------------------------
Reference is made to the attached Index to Financial Statements
and Schedules included herein on page 67 for a list of the financial
statements and schedules filed as part of this Report.
(b) Reports on Form 8-K
-------------------
(1) Current Report dated November 17, 1994, reporting
under Item 5. Other Events, Amendment No. 2 to the Shareholder Rights
Agreement dated as of January 26, 1988, between U.S. Trust Corporation
("U.S. Trust ") and First Chicago Trust Company of New York.
(2) Current Report dated November 18, 1994, reporting
under Item 5. Other Events, that U.S. Trust and The Chase Manhattan
Corporation ("Chase") had entered into an Agreement and Plan of Merger
pursuant to which Chase will acquire U.S. Trust's institutional custody,
mutual funds servicing and unit trust businesses for $363.5 million in
Chase common stock.
(3) Current Report dated December 23, 1994, reporting
under Item 5. Other Events, pro forma financial statements to present
the estimated effects of the transaction with Chase.
-54-
<PAGE>
Index of Exhibits
-----------------
Exhibit No. Item
- ----------- -----------------------------------------------------------
2.1 Agreement and Plan of Merger dated as of November 18, 1994
(as amended, supplemented or otherwise modified from time
to time) between The Chase Manhattan Corporation ("Chase")
and the Corporation, included in this Report as Appendix A
to the Proxy Statement/Prospectus dated February 9, 1995,
filed as Exhibit 99 to this Report ("Exhibit 99"). (1)(2)
2.2 Form of Agreement and Plan of Distribution among the
Corporation, the Trust Company, New USTC Holdings
Corporation ("New USTC Holdings") and New U.S. Trust
Company of New York ("New U.S. Trust"), included in this
Report as Appendix B to Exhibit 99. (1)(2)
2.3 Form of Contribution and Assumption Agreement between the
Trust Company and New U.S. Trust, included in this Report
as Appendix C to Exhibit 99. (1)(2)
2.4 Form of Post Closing Covenants Agreement among Chase, the
Corporation, the Trust Company, New USTC Holdings and New
U.S. Trust, included in this Report as Appendix D to
Exhibit 99. (1)
2.5 Form of Tax Allocation Agreement among the Corporation, New
USTC Holdings and Chase, included in this Report as
Appendix E to Exhibit 99. (1)
2.6 Services Agreement Term Sheet, filed as Exhibit 7 to the
Corporation's Current Report on Form 8-K bearing cover date
of November 18, 1994. (1)
3.1 Certificate of Incorporation of the Corporation, as amended
through May 4, 1993, filed as Exhibit 3(i) to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993. (1)
- -------------
(1) Incorporated herein by reference.
(2) The copy of this document being filed herewith does not include the
exhibits and schedules thereto which are identified as being
omitted in the table of contents of this document. The Corporation
undertakes to furnish any such omitted exhibits and schedules to
the Commission upon its request.
-55-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
3.2 By-Laws of the Corporation, as amended through October 28,
1986, filed as Exhibit (3) to the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987. (1)
4 Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the
Corporation and its subsidiaries, inasmuch as the total
amount of debt authorized under any such instrument does
not exceed 10% of the total assets of the Corporation and
its subsidiaries on a consolidated basis. The Corporation
agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K,
that it will furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
4.1 Specimen certificate representing the Corporation's Common
Shares, filed as Exhibit 6.3(a) to the Corporation's
Registration Statement on Form S-14 (Registration
No. 2-60433). (1)
4.2 Form of Rights Agreement, dated as of January 26, 1988,
between the Corporation and Morgan Shareholder Services
Trust Company, as Rights Agent, filed on January 28, 1988
as Exhibit 1 to the Corporation's Registration Statement on
Form 8-A registering Rights to Purchase the Corporation's
Series A Participating Cumulative Preferred Shares. (1)
4.3 Form of Amendment No. 1, dated as of December 12, 1989, to
the Rights Agreement, between the Corporation and First
Chicago Trust Company of New York (formerly Morgan
Shareholder Services Trust Company), as Rights Agent, filed
as Exhibit 4.4 to the Corporation's Current Report on Form
8-K dated December 12, 1989. (1)
4.4 Form of Amendment No. 2, dated as of November 17, 1994, to
the Rights Agreement, between the Corporation and First
Chicago Trust Company of New York, as Rights Agent, filed
as Exhibit 1 to the Corporation's Current Report on Form
8-K bearing cover date of November 17, 1994. (1)
- -------------
(1) Incorporated herein by reference.
-56-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
4.5 Specimen certificate representing Rights to Purchase the
Corporation's Series A Participating Cumulative Preferred
Shares, filed on January 28, 1988 as Exhibit B to Exhibit 1
to the Corporation's Registration Statement on Form 8-A
registering such Rights. (1)
10.1 Trust Company's Lease, dated June 20, 1980, with New York
Equities, Inc. covering space at 770 Broadway, New York,
New York (the "770 Lease"), filed as Exhibit (10)(b) to the
Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (the "1990 10-K"). (1)
10.2 Amendments to the 770 Lease between the Trust Company and
New York Equities, Inc. dated, respectively, as of April
20, 1981 and as of July 1, 1981; an amendment to the 770
Lease, between the Trust Company and Georgetown 770 Realty
Company, as successor to New York Equities, Inc., dated as
of May 31, 1984; and amendments to the 770 Lease between
the Trust Company and New York Equities Company, as
successor to New York Equities, Inc., dated, respectively,
as of May 15, 1986 and as of December 8, 1988, filed as
Exhibit (10)(c) to the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (the "1989
10-K"). (1)
10.3 Amendment to the 770 Lease between the Trust Company and
New York Equities Company dated as of June 1, 1990, filed
as Exhibit (10)(d) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 (the
"1991 10-K"). (1)
10.4 Lease, dated as of September 10, 1987, between 46-47
Associates, as Lessor, and the Trust Company, as Lessee,
covering space at 114 West 47th Street, New York, New York;
letters modifying the terms of such Lease dated,
respectively, September 10, 1987 and October 2, 1989;
Subordination Agreement dated as of September 10, 1987
between the Trust Company and 1133 Building Corp.
subordinating to such Lease a ground lease with respect to
the property subject to such Lease; Right of First Refusal
dated as of September 10, 1987 between the Trust Company
- -------------
(1) Incorporated herein by reference.
-57-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
10.4 and the Lessor respecting the construction of an annex (at
(Cont'd.) 130 West 47th Street, New York, New York) adjacent to the
property subject to such Lease and which annex is to be
subject to such Lease; and Agreement dated as of September
10, 1987 among the Trust Company, the Lessor and 1155
Office Building Corp. under which the Trust Company and the
Lessor may exercise an option to purchase property (at 132
West 47th Street, New York, New York) contiguous to the
property subject to such Lease, filed as Exhibit (10)(k) to
the 1989 10-K. (1)
10.5 Lease modification agreement dated December 7, 1987, be-
tween 46-47 Associates, as Lessor, and the Trust Company,
as Lessee; Modification of Annex Agreement, dated December
7, 1987, between 46-47 Associates and the Trust Company;
Modification of Right of First Refusal Agreement, dated
December 7, 1987, between 1133 Building Corp. and the Trust
Company York, New York, filed as Exhibit 10.5 to the
Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (the "1993 10-K"). (1)
10.6 Confirmation and Clarification Agreement dated March 10,
1992, between 46-47 Associates, as Lessor, and the Trust
Company, as Lessee, amending the lease agreement dated
September 10, 1987, filed as Exhibit 10.6 to the 1993
10-K. (1)
10.7 Clarification of Lease Modification Agreement, dated March
24, 1992, between 46-47 Associates, as Lessor, and the
Trust Company, as Lessee; Clarification of Right of First
Refusal Agreement, dated March 24, 1992, between 1133
Building Corp. and the Trust Company; Termination of Annex
Agreement, dated March 24, 1992, between 46-47 Associates
and the Trust Company; Agreement, dated March 24, 1992,
between 46-47 Associates and the Trust Company; Grant of
Easement and Zoning Lot and Development Agreement, dated
March 24, 1992, between 46-47 Associates and 1133 Building
Corp., and Indenture, dated March 24, 1992, between 46-47
Associates and David Puchall, filed as Exhibit 10.7 to the
1993 10-K. (1)
- -------------
(1) Incorporated herein by reference.
-58-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
10.8 Second Lease Modification Agreement, dated May 10, 1993,
between 46-47 Associates, as Lessor, and the Trust Company,
as Lessee, amending the lease agreement dated September 10,
1987, filed as Exhibit 10.8 to the 1993 10-K. (1)
10.9 License agreement between 46-47 Associates and the Trust
Company for space in Cellar 201 at 114 West 47th Street,
New York, New York.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
10.10 1981 Incentive Stock Option Plan of the Trust Company and
Affiliated Companies, as amended through January 1, 1983,
filed as Exhibit 10.9 to the 1993 10-K. (1).
10.11 Amendment dated July 27, 1987, to the 1981 Incentive Stock
Option Plan of the Trust Company and affiliated companies,
filed as Exhibit (10)(m) to the 1990 10-K. (1)
10.12 Amendment dated January 26, 1988, to the 1981 Incentive
Stock Option Plan of the Trust Company and affiliated
companies, filed as Exhibit (10)(n) to the 1990 10-K. (1)
10.13 1986 Stock Option Plan of the Trust Company and Affiliated
Companies, as amended through October 24, 1989, filed as
Exhibit (10)(s) to the 1989 10-K. (1)
10.14 Annual Incentive Plan of the Corporation, as amended,
restated and renamed effective as of January 1, 1994, filed
as Exhibit 10.13 to the 1993 10-K. (1)
10.15 Amendments dated November 17, 1994, and December 13, 1994,
to the Annual Incentive Plan of the Corporation.
10.16 1990 Annual Incentive Plan of the Trust Company and
Affiliated Companies, as amended and restated effective as
of January 1, 1994, filed as Exhibit 10.14 to the 1993
10-K. (1)
- -------------
(1) Incorporated herein by reference.
-59-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (Cont'd.)
---------------------------------------------
10.17 Amendment dated December 13, 1994, to the 1990 Annual
Incentive Plan of the Trust Company and Affiliated
Companies.
10.18 Long-Term Performance Plan of the Corporation, as amended,
restated and renamed effective as of January 1, 1994, filed
as Exhibit 10.15 to the 1993 10-K. (1)
10.19 Amendment dated December 13, 1994, to the Long-Term
Performance Plan of the Corporation.
10.20 1988 Long-Term Performance Plan of the Corporation, as
amended, restated and renamed effective as of January 1,
1994, filed as Exhibit 10.16 to the 1993 10-K. (1)
10.21 1989 Stock Compensation Plan of the Corporation, as
amended, restated and renamed effective as of January 1,
1994, filed as Appendix A of Exhibit 99 to the 1993
10-K. (1)
10.22 Amendment dated December 13, 1994, to the 1989 Stock
Compensation Plan of the Corporation.
10.23 Benefit Equalization Plan of the Corporation, as amended
and restated effective as of October 25, 1994.
filed as Exhibit 10.18 of the 1993 10-K. (1)
10.24 1990 Change in Control and Severance Policy for Top Tier
Officers of the Trust Company and Affiliated Companies,
as amended and restated effective as of January 1, 1994,
filed as Exhibit 10.19 to the 1993 10-K. (1)
10.25 Agreements re supplemental retirement benefits for Messrs.
Schwarz, Maurer, Roberts, Taylor and Wonham, as amended
and restated as of January 25, 1994, filed as Exhibit 10.20
to the 1993 10-K. (1)
- -------------
(1) Incorporated herein by reference.
-60-
<PAGE>
Index of Exhibits
-----------------
(Continued)
Exhibit No. Item
- ----------- -----------------------------------------------------------
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (Cont'd.)
---------------------------------------------
10.26 Executive Deferred Compensation Plan of the Corporation,
as adopted effective as of January 1, 1994, filed as
Exhibit 10.21 of the 1993 10-K. (1)
10.27 Amendments dated December 13, 1994, and January 24, 1995,
to the Executive Deferred Compensation Plan of the
Corporation.
10.28 The Corporation's Stock Option Plan for Non-Employee
Directors filed as Exhibit (10)(u) to the 1989 10-K. (1)
10.29 Board Members' Deferred Compensation Plan of the
Corporation, as amended, restated and renamed effective
as of January 1, 1994, filed as Appendix B of Exhibit 99 to
the 1993 10-K. (1)
10.30 Board Members' Retirement Plan of the Corporation, as
amended, restated and renamed effective as of January 1,
1994 filed as Exhibit 10.24 of the 1993 10-K. (1)
10.31 Stock Plan for Non-Officer Directors of the Corporation
effective as of February 15, 1992, filed as Exhibit A to
Exhibit 28 to the 1991 10-K. (1)
11 Statement re Computation of Per Share Earnings.
13 1994 Annual Report to Shareholders.
22 List of Subsidiaries.
23 Consent of Independent Accountants.
99.1 Proxy Statement/Prospectus dated February 9, 1995, relating
to the Special Meeting of the Corporation's Stockholders
scheduled to be held on March 22, 1995.
99.2 Pro Forma Condensed Financial Statements as of December 31,
1994.
- -------------
(1) Incorporated herein by reference.
-61-
<PAGE>
This Report has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission, and the financial
statements incorporated by reference herein have been prepared in
accordance with such rules and regulations and with generally accepted
accounting principles, by officers and employees of the Corporation and
its affiliates. This has been done under the general supervision of
Richard E. Brinkmann, Senior Vice President and Comptroller, who has
executed this Report on the Corporation's behalf. It has been reviewed
by other operating and staff personnel of the Corporation and such
affiliates and by counsel. The consolidated financial statements
incorporated by reference herein have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants, as indicated in their
report incorporated by reference herein.
This Report contains much detailed information, of which the
various signatories cannot and do not have independent personal
knowledge. The signatories believe, however, that the preparation and
review processes summarized above are such as ordinarily to afford
reasonable assurance of compliance with applicable requirements.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U. S. TRUST CORPORATION
(Registrant)
By Richard E. Brinkmann
------------------------
(Signature)
Richard E. Brinkmann
Senior Vice President
and Comptroller
Dated: March 10, 1995
-62-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
H. Marshall Schwarz Chairman of the Board March 10, 1995
- -------------------------- and Director (Principal
H. Marshall Schwarz Executive Officer)
Donald M. Roberts Vice Chairman of the March 10, 1995
- -------------------------- Board, Treasurer, and
Donald M. Roberts Director (Principal
Financial Officer)
Richard E. Brinkmann Senior Vice President March 10, 1995
- -------------------------- and Comptroller (Principal
Richard E. Brinkmann Accounting Officer)
Director March 10, 1995
- --------------------------
Edwin D. Etherington
Samuel C. Butler Director March 10, 1995
- --------------------------
Samuel C. Butler
Frederic C. Hamilton Director March 10, 1995
- --------------------------
Frederic C. Hamilton
-63-
<PAGE>
Signature Title Date
--------- ----- ----
Paul W. Douglas Director March 10, 1995
- --------------------------
Paul W. Douglas
Daniel P. Davison Director March 10, 1995
- --------------------------
Daniel P. Davison
Director March 10, 1995
- --------------------------
Carroll L. Wainwright, Jr.
Orson D. Munn Director March 10, 1995
- --------------------------
Orson D. Munn
Philippe de Montebello Director March 10, 1995
- --------------------------
Philippe de Montebello
Director March 10, 1995
- --------------------------
Richard F. Tucker
Frederick S. Wonham Vice Chairman of the March 10, 1995
- -------------------------- Board and Director
Frederick S. Wonham
-64-
<PAGE>
Signature Title Date
--------- ----- ----
Director March 10, 1995
- --------------------------
Philip L. Smith
Jeffrey S. Maurer President and Director March 10, 1995
- --------------------------
Jeffrey S. Maurer
John H. Stookey Director March 10, 1995
- --------------------------
John H. Stookey
Frederick B. Taylor Vice Chairman of the March 10, 1995
- -------------------------- Board and Director
Frederick B. Taylor
Antonia M. Grumbach Director March 10, 1995
- --------------------------
Antonia M. Grumbach
Robert N. Wilson Director March 10, 1995
- --------------------------
Robert N. Wilson
Peter O. Crisp Director March 10, 1995
- --------------------------
Peter O. Crisp
-65-
<PAGE>
Signature Title Date
--------- ----- ----
Peter L. Malkin Director March 10, 1995
- --------------------------
Peter L. Malkin
Eleanor Baum Director March 10, 1995
- --------------------------
Eleanor Baum
Ruth A. Wooden Director March 10, 1995
- --------------------------
Ruth A. Wooden
-66-
<PAGE>
U. S. TRUST CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Data incorporated by reference from the attached 1994 Annual
Report to Shareholders of U. S. Trust Corporation:
Consolidated Statements of Condition
December 31, 1994 and 1993 ............................... 21*
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993, and 1992 ........................ 20*
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1994, 1993, and 1992 .... 22*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 ......................... 23*
Notes to Consolidated Financial Statements ............... 24-42*
Report of Independent Accountants ......................... 42*
* Page numbers refer to the corresponding page numbers in the
Financial Section of the Annual Report to Shareholders.
All schedules are omitted since the required information is
not present in amounts sufficient to require submission of
the schedule.
-67-
<PAGE>
<PAGE>
EXHIBIT 10.9
46-47 ASSOCIATES
1133 Avenue of the Americas
New York, NY 10036
March 16, 1994
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Gentlemen:
United States Trust Company of New York (the "Licensee") entered into a
lease dated as of September 10, 1987, as the same was modified by various
letter agreements and amended by Lease Modification Agreement dated as of
December 7, 1987 and Second Lease Modification Agreement dated as of May
10, 1993 (collectively, the "Lease"), pursuant to which Licensee, as
Tenant, leased from 46-47 Associates, as Landlord (the "Licensor"), and
Licensor leased to Licensee, those certain premises compromising part of
sub-basement, basement, first (1st) floor (except public portions),
second (2nd) through fifteenth (15th) floors, and certain space on the
sixteenth (16th) mechanical floor and on the roof, all in the building
(the "Building") commonly known as 114 West 47th Street and located in
New York City, New York. The term of the Lease commenced on November 14,
1989 and expires on November 30, 2014.
In connection therewith, Licensee has requested Licensor's permission to
occupy Cellar 201 (the "Premises"), which the parties hereto agree shall
be deemed to comprise approximately 1,833 square feet of space, and
utilize same solely as a storage room, commencing on the date hereof and
continuing thereafter on a month-to-month basis throughout the term of
the Lease (the "License Period"), unless sooner terminated pursuant to
the terms hereof. The undersigned is willing to allow such occupancy of
the Premises during the License period by license granted by the
undersigned to Licensee upon the terms contained herein.
The undersigned, therefore, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby grants
to Licensee this license to (a) use and occupy the Premises during the
License Period, and (b) have access to and from the Premises, solely
during the License Period, on the terms and provisions of this license
and the applicable terms and provisions of the Lease, all of which terms
and provisions (collectively, the "Provisions"), are incorporated into
this license and made a part hereof as if fully set forth herein, except
as may be otherwise expressly provided for in this license or as may be
inconsistent with the terms, scope and/or purpose hereof (this license
and the Provisions are hereinafter collectively referred to as the
"License"). Anything to the contrary in the foregoing sentence
notwithstanding, no lease is created, or shall be deemed to be or have
been created, hereby or by any course of conduct between the undersigned,
<PAGE>
46-47 Associates and Licensee with respect to the Premises. Licensee has
neither any leasehold estate or interest in the Premises, nor any right
title or interest in or to the Premises whatsoever, except as expressly
provided by this License.
This License shall permit Licensee to use and occupy the Premises, but
only in the manner set forth in and subject to the terms and conditions
of this License, and subject further to the following conditions:
1. The following provisions of the Lease shall be deemed
inapplicable to Licensee's use and occupancy of the Premises and deleted
from the Provisions:
Articles 1-5 (except for the second sentence of Section 5.01,
the first sentence of Section 5.02, and entire Section 5.03);
Sections 6.01 C-E, 6.05 and 6.06; Article 7 (except for
Sections 7.02(c) and 7.03(b), (c) and (g); Article 8 (after
"others" [followed by a period] on line 5 of Section 8.01A);
Article 9 (except for the first sentence of Section 9.01, and
the first sentence of Section 9.02 up to the word "mortgage"
[followed by a period] on line 7); Sections 10.02 and 10.05;
Article 13 (after "Premises" [followed by a period] on line 6
of Section 13.01, except for the last paragraph of Section
13.03 and entire Section 13.04 B); Article 15 (except for
Sections 15.01, 15.02, 15.04 (omitting the penultimate sentence
of 15.04), and the entire 15.05); Section 17.05; the last two
sentences of Section 18.01; Section 18.04; Articles 21-25 and
32; the first four words of Section 33.01 and entire Sections
33.11 and 33.12; Articles 34 and 37; Schedules A, A-1 and B;
and Exhibits A - H.
2. Licensee shall pay to Licensor, as an occupancy fee for this
License, $2,596.76 per month on the first day of each and every month
during the period this License is in full force and effect. If Licensee
first occupies the Premises on a day other than the first day of the
month, then the occupancy fee shall be prorated upon the actual occupancy
date. The occupancy fee shall remain fixed at the foregoing amount so
long as this License shall remain in full force and effect. The first
monthly installment of the occupancy fee shall be paid upon delivery of
the Premises to Licensee.
3. Unless Licensee shall be in default under the terms of this
License, Licensee may, at its own cost and expense, move its office
equipment and furniture into the Premises, and store it therein, with no
liability on Licensor's part (except for Licensee's actual out-of-pocket
expenses incurred as a direct result of the negligence of Landlord, its
agents and employees) for any damage or loss relating thereto, until the
effective date of revocation or earlier termination of this License.
4. Licensee shall not be deemed or construed to be a tenant or as
having any leasehold, tenancy or any other rights or interests whatsoever
in the Premises except as expressly set forth herein.
<PAGE>
5. Subject to the provisions of Section 7 hereof, Licensee shall,
during its use and/or occupancy of the Premises, comply in the Premises
with all laws, orders, ordinances, regulations and requirements of all
governmental authorities having jurisdiction over Licensor, Licensee, or
the Premises, and upon vacating the Premises, Licensee shall surrender
the same vacant, broom-clean and in good condition and repair.
6. Licensee has inspected the Premises, and accepts possession of
the same in its "as-is" condition as of the date hereof, and Licensor
shall have no obligation whatsoever to perform any work or furnish any
materials, or supply any services other than electricity for lighting and
electrical power and elevator service, in connection with Licensee's use
and occupancy of the Premises.
7. In connection with Licensee's obligation to comply with all laws
and ordinances as provided for under Section 5 hereof and Article 6 of
the Provisions, and in addition to any exceptions to Licensee's
compliance obligations which may be contained herein, Licensee shall have
no obligation to cure any violation of, or any condition violative of,
any applicable law or ordinance if such violation or condition arose or
existed prior to Licensee's taking possession of the Premises and such
condition would otherwise be deemed a violation upon (a) its discovery or
(b) the mere passage of time, nor shall Licensee have any obligation to
comply with any law or ordinance applicable because of the use of the
Premises as a storage facility and not due to the particular manner of
use of the Premises by Licensee.
8. The parties hereto hereby acknowledge their mutual understanding
and agreement that (a) this License is granted to Licensee in connection
with, and in respect of, the Lease and (b) this License is intended
solely as an accommodation by Licensor of Licensee's need for temporary
storage space in the Building.
9. Licensor further agrees that, except for Licensor's right to
cancel this License as provided for in Section 12 hereof, Licensor shall
not revoke this License during the License Period unless or until
Licensee shall be in default of any of the terms or conditions of this
License or of the Lease, after notice and the expiration of any
applicable cure period.
10. Licensee further agrees that it shall not cause or permit
"Hazardous Materials" (as defined below) to be used, transported, stored,
released, handled, produced or installed in, on or from the Premises or
the Building, except for "Hazardous Materials" (such as paint, and
cleaning and photocopying fluids) that are customarily utilized in the
maintenance and operation of offices, provided such items are used and
stored as may be directed by the manufacturer thereof and in compliance
with laws and/or the requirements of public authorities. The term
"Hazardous Materials" shall, for the purposes hereof, mean any flammable,
explosive or radioactive materials; hazardous wastes; hazardous and toxic
substances or related materials; asbestos or any material containing
asbestos or any other such substance or material, as defined by any
federal, state or local law, ordinance, rule or regulation, including,
without limitation, the Comprehensive Environmental Response Compensation
<PAGE>
and Liability Act of 1980, as amended; the Hazardous Materials
Transportation Act, as amended; the Resource Conservation and Recovery
Act, as amended; and in the regulations adopted and publications
promulgated pursuant to each of the foregoing. In the event of breach
of the provisions of this Section 10, Licensor shall, in addition to all
of its rights and remedies under this License, or the Lease, and pursuant
to law, require Licensee to remove any such Hazardous Materials from the
Premises or the Building in the manner prescribed for such removal by all
requirements of law. The provisions of this Section 10 shall survive the
expiration or sooner termination of this License.
11. At any time during the License Period, Licensee may cancel this
License effective as of the last day of a calendar month by giving
Licensor not less than thirty (30) day's prior written notice of such
cancellation, and upon the expiration of said thirty (30) days, the term
of this License shall end as fully and completely as if such date were
originally fixed herein for the expiration of said term.
12. At any time after the first twelve (12) months of the License
Period, Licensor may cancel this License effective as of the last day of
a calendar month by giving Licensee not less than thirty (30) days' prior
written notice of such cancellation, and upon the expiration of said
thirty (30) days, the term of this License shall end as fully and
completely as if such date were originally fixed herein for the
expiration of said term.
13. Licensor and Licensee hereby covenant, warrant and represent
that there was no broker or finder instrumental in consummating this
License.
14. This License is a personal privilege inuring the benefit
only of Licensee and is not assignable by Licensee.
Very truly yours,
46-47 ASSOCIATES, LICENSOR
NAME: Douglas Durst
-------------------
TITLE: Partner
-------------------
UNITED STATES TRUST COMPANY OF NEW YORK, LICENSEE
NAME: Frederick S. Wonham
---------------------
TITLE: Vice Chairman
---------------------
<PAGE>
EXHIBIT 10.15
Amendments to the Annual Incentive Plan of the Corporation
Adopted by the Board of Directors of the Corporation on
November 17, 1994, and December 13, 1994
November 17, 1994
- -----------------
Resolved, that this Board hereby approves management's recommendations
for the treatment of employee benefits in connection with the proposed
Restructuring, as described in the memorandum of Patricia W. McGuire
dated November 17, 1994 and the summary attached thereto, copies of
which are attached to the minutes of this meeting;
Resolved, that the appropriate officers of the Corporation and the Trust
Company are hereby authorized and directed (A) to prepare such documents
for the amendment or adoption, or for the transfer and assumption, of
the plans or programs referred to in the aforementioned memorandum of
Mrs. McGuire, and to make such conforming amendments to other plans, as
may be necessary to implement the foregoing resolution and the
transactions provided for or contemplated under the terms of the
Distribution Agreement, Contribution Agreement and Merger Agreement, (B)
to submit such documents to the Board of Directors of the Corporation,
the Board of Trustees of the Trust Company, the Board of Directors of
New Holdings, and/or the Board of Trustees of New Trustco, as
appropriate, for their approval prior to the consummation of the Merger
in accordance with the Merger Agreement, and (C) to execute such
documents and take such other actions as may be necessary to carry out
the purposes and intent of the foregoing resolutions.
-1-
u.s. trust
memorandum
to: Board of Directors and Board of Trustees
from: Patricia W. McGuire
date: November 17, 1994
re: Treatment of Employee Benefits in Proposed Transaction
Attached is a summary of management's recommendations for handling
employee benefits in connection with the proposed Transaction with
Chase. Management requests that these recommendations be approved by
the Boards of Directors and Trustees at their special meeting to be held
on November 17, 1994.
All of the recommendations reflected in the summary were previously
submitted to and approved in principle by the Compensation and Benefits
Committee at its meeting on October 25, 1994, except for the following:
...Old AIP participants who terminated before 1993 will get a 10%
account balance increase if they agree to be cashed out in 1994.
-2-
December 13, 1994
- -----------------
Resolved, that the Annual Incentive Plan of U.S. Trust Corporation is
hereby amended effective December 13, 1994 by adding to the end of
Section 6 of the plan the following new paragraph;
"Notwithstanding any other provision to the contrary contained
in this Section 6, for the purpose of crediting interest to the accounts
of Participants for the fiscal year 1994, the Corporation's R.O.E. for
such year shall be deemed to be 20%."
-3-
EXHIBIT 10.17
Amendment to the 1990 Annual Incentive Plan of the Trust
Company and Affiliated Companies Adopted by the Board of
Directors of the Corporation on December 13, 1994
Resolved, that this Board hereby approves management's recommendation
for discontinuing the award of Benefit Equalization Units under the 1989
Stock Compensation Plan of U.S. Trust Corporation (the "1989 Stock
Plan") as described in the memorandum of Patricia W. McGuire dated
December 13, 1994, a copy of which is attached to the minutes of this
meeting;
Resolved, that the appropriate officers of the Corporation and the Trust
Company are hereby authorized and directed (A) to prepare such documents
for the amendment of the 1989 Stock Compensation Plan and the Executive
Deferred Compensation Plan of U.S. Trust Corporation, and to make such
conforming amendments to the 1990 Annual Incentive Plan of United States
Trust Company of New York and Affiliated Companies and other plans, as
may be necessary to implement the foregoing resolution, (B) to submit
such documents to the Board of Directors of the Corporation, and the
Board of Trustees of the Trust Company, as appropriate, for their
approval, and (C) to execute such other documents and take such other
actions as may be necessary to carry out the purposes and intent of the
foregoing resolution.
-1-
u.s. trust
memorandum
to: Board of Directors and Board of Trustees
from: Patricia W. McGuire, ext. 1401
date: December 13, 1994
re: Proposed Changes in Executive Benefit Plans
At the meetings of the Boards of Directors and Trustees to be held on
December 13, 1994, management will ask the Boards to approve three
changes affecting U.S. Trust's benefit plans. These changes are
described below.
1. Discontinuance of BEU Awards.
The 1993 Tax Act reduces the amount of compensation that can be taken
into account in making contributions to U.S. Trust's ESOP, to $150,000
starting in 1994. This will increase the number of Benefit Equalization
Units ("BEU's") that must be awarded to officers under the 1989 Stock
Compensation Plan to "make up" for their reduced ESOP contributions.
Management believes it would be desirable, in order to lessen the
dilutive effect on U.S. Trust shares, for benefits replacing "lost" ESOP
contributions to be provided in the form of cash amounts, rather than in
stock. Accordingly, management recommends that the award of BEU's be
discontinued effective with the ESOP contributions to be made for 1994,
and that an officer's "excess" ESOP contribution (i.e., the portion that
exceeds the amount permissible as a contribution under the tax law
limits) be provided, instead, by means of a credit to the officer's
account under U.S. Trust's Executive Deferred Compensation Plan....
-2-
EXHIBIT 10.19
Amendment to the Long-Term Performance Plan of
the Corporation Adopted by the Board of Directors
of the Corporation on December 13, 1994
Resolved, that the Long-Term Performance Plan of U.S. Trust
Corporation is hereby amended effective December 13, 1994 by
adding to the end of Section 7F of the plan the following new
paragraph:
"Notwithstanding any other provision to the contrary in this
Section 7F, for the purpose of crediting interest to the R.O.E.
Balance of the Interest Portion of Participants' Accounts for the
fiscal year 1994, the Corporation's R.O.E. for such year shall be
deemed to be 20%."
-1-
EXHIBIT 10.22
Amendment to the 1989 Stock Compensation Plan of
the Corporation Adopted by the Board of Directors
of the Corporation on December 13, 1994
Resolved, that this Board hereby approves management's recommendation
for discontinuing the award of Benefit Equalization Units under the 1989
Stock Compensation Plan of U.S. Trust Corporation (the "1989 Stock
Plan") as described in the memorandum of Patricia W. McGuire dated
December 13, 1994, a copy of which is attached to the minutes of this
meeting;
Resolved, that the appropriate officers of the Corporation and the Trust
Company are hereby authorized and directed (A) to prepare such documents
for the amendment of the 1989 Stock Compensation Plan and the Executive
Deferred Compensation Plan of U.S. Trust Corporation, and to make such
conforming amendments to the 1990 Annual Incentive Plan of United States
Trust Company of New York and Affiliated Companies and other plans, as
may be necessary to implement the foregoing resolution, (B) to submit
such documents to the Board of Directors of the Corporation, and the
Board of Trustees of the Trust Company, as appropriate, for their
approval, and (C) to execute such other documents and take such other
actions as may be necessary to carry out the purposes and intent of the
foregoing resolution.
-1-
u.s. trust
memorandum
to: Board of Directors and Board of Trustees
from: Patricia W. McGuire, ext. 1401
date: December 13, 1994
re: Proposed Changes in Executive Benefit Plans
At the meetings of the Boards of Directors and Trustees to be held on
December 13, 1994, management will ask the Boards to approve three
changes affecting U.S. Trust's benefit plans. These changes are
described below.
1. Discontinuance of BEU Awards.
The 1993 Tax Act reduces the amount of compensation that can be taken
into account in making contributions to U.S. Trust's ESOP, to $150,000
starting in 1994. This will increase the number of Benefit Equalization
Units ("BEU's") that must be awarded to officers under the 1989 Stock
Compensation Plan to "make up" for their reduced ESOP contributions.
Management believes it would be desirable, in order to lessen the
dilutive effect on U.S. Trust shares, for benefits replacing "lost" ESOP
contributions to be provided in the form of cash amounts, rather than in
stock. Accordingly, management recommends that the award of BEU's be
discontinued effective with the ESOP contributions to be made for 1994,
and that an officer's "excess" ESOP contribution (i.e., the portion that
exceeds the amount permissible as a contribution under the tax law
limits) be provided, instead, by means of a credit to the officer's
account under U.S. Trust's Executive Deferred Compensation Plan....
-2-
<PAGE>
EXHIBIT 10.23
BENEFIT EQUALIZATION PLAN
OF
U.S. TRUST CORPORATION
As Amended and Restated
effective as of October 25, 1994
______
1. Purpose.
The purpose of this Plan is to provide members of the Employees'
Retirement Plan of United States Trust Company of New York and
Affiliated Companies, and their surviving spouses, with benefits that
would have been payable to them under such plan but for the limitations
placed on benefits payable under such plan by sections 401(a)(17) and
415 of the Code.
The Plan is intended to constitute an "excess benefit plan", as
that term is defined in section 3(36) of ERISA, to the extent that the
Plan provides benefits equal to any reduction in benefits under the
Retirement Plan attributable solely to the limitations imposed by
section 415 of the Code. The Plan is intended to constitute an unfunded
plan of deferred compensation for "a select group of management or
highly compensated employees", within the meaning of sections 201(2),
301(a)(3) and 401(a)(1) of ERISA, to the extent that the Plan provides
any other benefits.
The Plan, as hereinafter set forth, represents a continuation of
the Benefit Equalization Plan of United States Trust Company of New York
and Affiliated Companies, which was amended, restated and renamed
effective as of January 1, 1994 to reflect (a) the adoption of the Plan
by U.S. Trust Corporation as its own Plan and the Corporation's
assumption of, and becoming solely responsible for, all liabilities and
obligations of United States Trust Company of New York under the Plan,
and (b) changes in certain other provisions of the Plan.
2. Definitions.
When used herein, the following terms shall have the following
meanings:
"Affiliated Companies" means United States Trust Company of New
York and each other direct or indirect subsidiary of the Corporation.
-1-
"Benefit Limitations" means (i) the limitation imposed by section
401(a)(17) of the Code on the amount of an Eligible Employee's annual
compensation that may be taken into account in computing the Eligible
Employee's pension benefit under the Retirement Plan and (ii) the
limitations imposed by section 415 of the Code on the amount of the
pension benefit payable to an Eligible Employee under the Retirement
Plan.
"Board of Directors" means the Board of Directors of the U.S. Trust
Corporation.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" means the Compensation and Benefits Committee of the
Board of Directors.
"Corporation" means U.S. Trust Corporation.
"Earliest Payment Date" means (i) the date as of which payment of
an Eligible Employee's Pension under the Retirement Plan commences, or
(ii) if earlier, the earliest date as of which the Eligible Employee
could elect, under the Retirement Plan, to have payment of his or her
Pension commence.
"Eligible Employee" means any Employee who becomes entitled to
receive a Pension pursuant to Article 5 or Article 6 of the Retirement
Plan, the amount of which is less than the amount of the Pension he or
she would be entitled to receive if the Employee's Pension were
calculated without regard to the Benefit Limitations.
"Eligible Spouse" means the surviving spouse of a deceased Employee
who, upon such Employee's death, becomes entitled to receive a Spouse's
Preretirement Survivorship Pension pursuant to Section 8.7 of the
Retirement Plan, the amount of which is less than the amount of the
Spouse's Preretirement Survivorship Pension he or she would be entitled
to receive if the Pension that the deceased Employee would have been
entitled to receive had he or she not died were calculated without
regard to the Benefit Limitations. Notwithstanding the foregoing, the
surviving spouse of a deceased Employee shall not be treated as an
Eligible Spouse for purposes of this Plan if payment of an Excess
Pension Benefit to such deceased Employee had commenced prior to his or
her death.
"Employee" means any person employed, or formerly employed, by the
Corporation or any of its Affiliated Companies that participates in the
Retirement Plan.
-2-
"Equivalent Actuarial Value" shall have the same meaning as is
assigned to such term under the Retirement Plan for purposes of
converting a life annuity to a 50% joint and survivor annuity.
"Joint and Survivor Pension" means a monthly annuity payable to an
Eligible Employee during his lifetime, with a monthly survivor's annuity
payable after the death of such Eligible Employee to his spouse on his
Payment Starting Date who survives him for such spouse's life
(regardless of such spouse's remarriage after his death) in the amount
of 50% of the monthly annuity paid to the Eligible Employee prior to his
death.
"Payment Starting Date" means the first day of the month coinciding
with or next following the later of (i) the date of the Eligible
Employee's Termination of Employment, or (ii) the Eligible Employee's
Earliest Payment Date.
"Plan" means the Benefit Equalization Plan of U.S. Trust
Corporation as set forth herein and as amended and restated from time to
time.
"Retirement Plan" means the Employees' Retirement Plan of United
States Trust Company of New York and Affiliated Companies, as amended
and restated from time to time.
"Termination of Employment" means the termination of an Employee's
employment with the Corporation and all of its Affiliated Companies.
Each other capitalized term used herein, not otherwise defined,
shall have the meaning given to such term under the Retirement Plan.
3. Excess Pension Benefit.
Upon an Eligible Employee's Termination of Employment for any
reason other than death, the Eligible Employee shall be entitled to
receive an Excess Pension Benefit under this Plan.
The Excess Pension Benefit shall be a Pension which is equal to the
excess of (i) the Pension that would be payable to the Eligible Employee
under the Retirement Plan in the form of a single life annuity if
payment thereof were to commence on the Eligible Employee's Payment
Starting Date, calculated without regard to the Benefit Limitations,
over (ii) the Pension that would be payable to the Eligible Employee
under the Retirement Plan in the form of a single life annuity if
payment thereof were to commence on the Eligible Employee's Payment
Starting Date, calculated by taking into account the Benefit
Limitations.
-3-
The Excess Pension Benefit shall be payable on a monthly basis, and
each payment thereof shall be due on the first day of the month. In the
case of an Eligible Employee who is not married on his Payment Starting
Date, the Excess Pension Benefit shall be payable in the form of a
single life annuity. In the case of an Eligible Employee who is married
on his Payment Starting Date, the Excess Pension Benefit shall be
payable in the form of a Joint and Survivor Pension which shall be of
Equivalent Actuarial Value to the Excess Pension Benefit payable in the
form of a single life annuity.
Payment of the Excess Pension Benefit to the Eligible Employee
shall commence as of his Payment Starting Date, and shall terminate with
the payment due for the month in which he dies. Payment of a survivor's
annuity under the Excess Pension Benefit to the Eligible Employee's
surviving spouse shall commence on the first day of the month following
the date of the Eligible Employee's death, and shall terminate with the
payment due for the month in which the surviving spouse dies.
4. Excess Survivorship Pension Benefit.
Upon the death of an Employee, the Employee's Eligible Spouse shall
be entitled to receive an Excess Survivorship Pension Benefit under this
Plan.
The Excess Survivorship Pension Benefit shall be a Pension which is
equal to the excess of (i) the Spouse's Preretirement Survivorship
Pension that would be payable to the Eligible Spouse under the
Retirement Plan if payment thereof were to commence on the first day of
the month following the date of the Employee's death, calculated without
regard to the Benefit Limitations, over (ii) the Spouse's Preretirement
Survivorship Pension that would be payable to the Eligible Spouse under
the Retirement Plan if payment thereof were to commence on the first day
of the month following the date of the Employee's death, calculated by
taking into account the Benefit Limitations.
The Excess Survivorship Pension Benefit shall be payable in the
form of a single life annuity. Payments shall be made on a monthly
basis, and shall be due on the first day of the month. Payment of the
Excess Survivorship Pension Benefit to the Eligible Spouse shall
commence as of the first day of the month following the date of the
Employee's death, and shall terminate with the payment due for the month
in which the surviving spouse dies.
-4-
5. Source of Payment.
All payments to be made hereunder shall be paid from the general
assets of the Corporation, and no special or separate fund shall be
established and no segregation of assets shall be made to assure such
payments. Nothing contained in the Plan, and no action taken pursuant
to the provisions of the Plan, shall create or be construed to create a
trust of any kind, or as creating in any Eligible Employee or any other
person any right, title or beneficial ownership interest in or to any
assets of the Corporation. The Plan constitutes a mere promise by the
Corporation to make benefit payments in the future. It is the intention
of the Corporation that the Plan be treated as unfunded for Federal
income tax purposes and for purposes of Title I of ERISA. To the extent
that any person acquires a right to receive payments from the
Corporation under the Plan, such right shall be no greater than the
right of any unsecured general creditor of the Corporation.
Notwithstanding the foregoing, the Corporation may establish a
bookkeeping reserve to reflect its obligations hereunder, or may
establish a "grantor" trust, within the meaning of sections 671 through
679 of the Code, to assist it in making the payments provided for
hereunder; provided, however, that any bookkeeping reserve, and the
assets of any trust, so established shall not be deemed to constitute
assets of this Plan, and the assets of any trust so established shall at
all times prior to payment to Eligible Employees and Eligible Spouses
remain a part of the general assets of the Corporation and subject to
the claims of the Corporation's general creditors.
6. Administration of the Plan.
The Plan shall be administered by the Committee, which shall have
full power and authority to interpret and construe the Plan, to make all
determinations considered necessary or advisable for the administration
of the Plan and the calculation of the amount of benefits payable
thereunder, and to review claims for benefits under the Plan. The
Committee's interpretations and constructions of the Plan and its
decisions or actions thereunder shall be binding and conclusive on all
persons for all purposes.
No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by such member or on his or
her behalf in his or her capacity as a member of the Committee nor for
any mistake of judgment made in good faith, and the Corporation shall
indemnify and hold harmless each member of the Committee and each other
employee, officer, or director or trustee of the Corporation or any of
its Affiliated Companies to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or
-5-
delegated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the
approval of the Board of Directors) arising out of any act or omission
to act in connection with the Plan unless arising out of such person's
own fraud or bad faith.
7. Amendment and Termination.
The Plan may be amended, suspended or terminated, with prospective
or retroactive effect, in whole or in part, by the Board of Directors
without the consent of any Employee or any other person. The Committee
may adopt any amendment that may be necessary or appropriate to
facilitate the administration, management and interpretation of the Plan
or to conform the Plan thereto, provided any such amendment does not
have a material effect on the currently estimated cost to the
Corporation of maintaining the Plan. No such amendment, suspension or
termination shall retroactively impair or otherwise adversely affect the
rights of any Employee or other person to benefits under the Plan that
have accrued prior to the date of such action as determined by the
Committee in its sole discretion.
Notwithstanding the above, and notwithstanding any other provision
in this Plan to the contrary, the Committee may direct that no benefit
attributable to the application under the Retirement Plan of the Benefit
Limitation described in clause (i) of the definition of the term
"Benefit Limitations" be paid with respect to an Eligible Employee if
the Committee, in its sole discretion, determines that the payment of
such benefit would jeopardize the Plan's status as a plan of deferred
compensation for "a select group of management or highly compensated
employees" within the meaning of the applicable provisions of ERISA with
respect to such benefits.
8. General Provisions.
The following additional provisions shall be applicable with
respect to the Plan.
(a) The Plan shall be binding upon and inure to the benefit of the
Corporation and its successors and assigns, and Eligible Employees,
Eligible Spouses, and their estates. The Plan shall also be binding
upon any successor corporation or organization succeeding to
substantially all of the assets and business of the Corporation, but
nothing in the Plan shall preclude the Corporation from merging or
consolidating into or with, or transferring all or substantially all of
its assets to, another corporation or organization that assumes the Plan
and all obligations of the Corporation hereunder. The Corporation
-6-
agrees that it will make appropriate provision for the preservation of
Employees' rights under the Plan in any agreement or plan that it may
enter into to effect any merger, consolidation, reorganization or
transfer of assets. Upon such a merger, consolidation, reorganization,
or transfer of assets and assumption, the term "Corporation" shall refer
to such other corporation or organization and the Plan shall continue in
full force and effect.
(b) Neither the Plan nor any action taken hereunder shall be
construed as giving to any Employee the right to be retained in the
employ of the Corporation or any of its Affiliated Companies or as
affecting the right of the Corporation or any of its Affiliated
Companies to dismiss any Employee.
(c) The Corporation shall withhold from all benefits otherwise
payable under the Plan all Federal, state, local or other taxes required
pursuant to law to be withheld with respect to such payments.
(d) The rights or interests of any Eligible Employee under the
Plan shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors or beneficiaries of such person.
(e) If the Committee shall find that any person to whom any amount
is payable under the Plan is unable to care for his or her affairs
because of illness, accident or legal incapacity, then, if the Committee
so directs, any payment due to such person may be paid to such person's
spouse, child or other relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to
be a proper recipient on behalf of such person, unless a prior claim for
payment of such amount has been made by a duly appointed legal
representative of such person. Any such payment shall be a complete
discharge of the liability of the Corporation therefor.
(f) The Plan shall be governed by the laws of the State of New
York from time to time in effect.
-7-
EXHIBIT 10.27
Amendments to the Executive Deferred Compensation Plan of
the Corporation Adopted by the Board of Directors of the
Corporation on December 13, 1994, and January 24, 1995
December 13, 1994
- -----------------
Resolved, that this Board hereby approves management's recommendation
for discontinuing the award of Benefit Equalization Units under the 1989
Stock Compensation Plan of U.S. Trust Corporation (the "1989 Stock
Plan") as described in the memorandum of Patricia W. McGuire dated
December 13, 1994, a copy of which is attached to the minutes of this
meeting;
Resolved, that the appropriate officers of the Corporation and the Trust
Company are hereby authorized and directed (A) to prepare such documents
for the amendment of the 1989 Stock Compensation Plan and the Executive
Deferred Compensation Plan of U.S. Trust Corporation, and to make such
conforming amendments to the 1990 Annual Incentive Plan of United States
Trust Company of New York and Affiliated Companies and other plans, as
may be necessary to implement the foregoing resolution, (B) to submit
such documents to the Board of Directors of the Corporation, and the
Board of Trustees of the Trust Company, as appropriate, for their
approval, and (C) to execute such other documents and take such other
actions as may be necessary to carry out the purposes and intent of the
foregoing resolution.
-1-
u.s. trust
memorandum
to: Board of Directors and Board of Trustees
from: Patricia W. McGuire, ext. 1401
date: December 13, 1994
re: Proposed Changes in Executive Benefit Plans
At the meetings of the Boards of Directors and Trustees to be held on
December 13, 1994, management will ask the Boards to approve three
changes affecting U.S. Trust's benefit plans. These changes are
described below.
1. Discontinuance of BEU Awards.
The 1993 Tax Act reduces the amount of compensation that can be taken
into account in making contributions to U.S. Trust's ESOP, to $150,000
starting in 1994. This will increase the number of Benefit Equalization
Units ("BEU's") that must be awarded to officers under the 1989 Stock
Compensation Plan to "make up" for their reduced ESOP contributions.
Management believes it would be desirable, in order to lessen the
dilutive effect on U.S. Trust shares, for benefits replacing "lost" ESOP
contributions to be provided in the form of cash amounts, rather than in
stock. Accordingly, management recommends that the award of BEU's be
discontinued effective with the ESOP contributions to be made for 1994,
and that an officer's "excess" ESOP contribution (i.e., the portion that
exceeds the amount permissible as a contribution under the tax law
limits) be provided, instead, by means of a credit to the officer's
account under U.S. Trust's Executive Deferred Compensation Plan....
-2-
January 24, 1995
- ----------------
Resolved, that this Board hereby approves management's recommendations
for changes in U.S. Trust's benefit plans, as described in the
memorandum of Patricia W. McGuire dated January 24, 1995, a copy of
which is attached to the minutes of this meeting;
Resolved, that the appropriate officers of the Corporation and the Trust
Company are hereby authorized and directed (A) to prepare such documents
for the amendment of the 1989 Stock Compensation Plan of U.S. Trust
Corporation, the Executive Deferred Compensation Plan of U.S. Trust
Corporation, the 1990 Annual Incentive Plan of United States Trust
Company of New York and Affiliated Companies, and the Incentive Award
Plan of United States Trust Company of New York and Affiliated Companies
and to make such conforming amendments to other plans, as may be
necessary to implement the foregoing resolution, (B) to submit such
documents to the Board of Directors of the Corporation, and/or the Board
of Trustees of the Trust Company, as appropriate, for their approval,
and (C) to execute such other documents and take such other actions as
may be necessary to carry out the purposes and intent of the foregoing
resolution.
-3-
u.s. trust
memorandum
to: Compensation & Benefits Committee
from: Patricia W. McGuire
date: January 24, 1995
re: Proposed Changes in Executive Benefit Plans
At the meetings of the Boards of Directors and the Board of Trustees to
be held on January 24, 1995, management will ask the Boards to approve
various changes affecting U.S. Trust's benefit plans. These changes are
described below....
6. New Payment Option for EDCP.
---------------------------
Management proposes that the EDCP be amended to permit participants
whose account balances become payable at retirement to elect a new
distribution option designed to qualify their Plan payments for
exclusion from NYS income tax if they will be nonresidents of New York
after retirement. Under this new option, a participant's account
balances will be paid out in 15 annual installments, with interest
credited on the unpaid balance at a fixed rate equal to the monthly
average constant maturity yield for a 10-year maturity on U.S. Treasury
securities, for the month preceding the start of the participant's
payments.
An election for the new payment option will have to be made at
least 12 months before the participant's retirement date, except that
1995 retirees may elect the new payment option at any time prior to the
March stockholders meeting....
-4-
<TABLE>
EXHIBIT 11
U. S. TRUST CORPORATION
COMPUTATION OF NET INCOME PER SHARE
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net Income ...................................................... $20,967,000 $42,267,000 $28,751,000
Plus Dividend Equivalent on Deferred Long-Term Performance
Plan Awards (After-Tax) ....................................... 308,000 213,000 -
----------- ----------- -----------
Net Income Before the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. 21,275,000 42,480,000 28,751,000
----------- ----------- -----------
Cumulative Effect of Accounting Changes (1) ..................... - - 7,780,000
Restructuring Charges (2) ....................................... 27,934,000 - -
----------- ----------- -----------
Net Income After the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. $49,209,000 $42,480,000 $36,531,000
=========== =========== ===========
Weighted average number of common shares outstanding ............ 9,381,033 9,344,026 9,192,644
Add average shares issuable under stock option and
variable stock award plans .................................... 638,559 624,007 505,343
----------- ----------- -----------
Total Common and Common Equivalent Shares .................. 10,019,592 9,968,033 9,697,987
=========== =========== ===========
Net Income Per Share:
Net Income Before the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. $ 4.91 $ 4.26 $ 3.76
Cumulative Effect of Accounting Changes (1) ..................... - - (.80)
Restructuring Charges (2) ....................................... (2.79) - -
----------- ----------- -----------
Net Income After the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. $ 2.12 $ 4.26 $ 2.96
=========== =========== ===========
(1) In 1992, the Corporation adopted, retroactive to January 1, 1992, Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". As a result of adopting these
standards, a one-time, non-cash net after tax charge of $7.8 million was incurred.
(2) Reflects charges incurred in connection with the pending sale of the Corporation's Processing Business
to The Chase Manhattan Corporation which are included in the Corporation's results of operations. For
further information on the sale, see the Proxy Statement/Prospectus dated February 9, 1995 for a special
meeting of shareholders of the Corporation to be held on March 22, 1995, filed herewith as Exhibit 99.1 which
is incorporated by reference herein.
</TABLE>
-1-
<PAGE>
<TABLE>
COMPUTATION OF NET INCOME PER SHARE (CONTINUED)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
FULLY DILUTED NET INCOME PER SHARE:
Net Income ...................................................... $20,967,000 $42,267,000 $28,751,000
Plus Dividend Equivalent on Deferred Long-Term Performance
Plan Awards (After-Tax) ....................................... 308,000 213,000 -
----------- ----------- -----------
Net Income Before the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. 21,275,000 42,480,000 28,751,000
----------- ----------- -----------
Cumulative Effect of Accounting Changes (1) ..................... - - 7,780,000
Restructuring Charges (2) ....................................... 27,934,000 - -
----------- ----------- -----------
Net Income After the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. $49,209,000 $42,480,000 $36,531,000
=========== =========== ===========
Weighted average number of common shares outstanding ............ 9,381,033 9,344,026 9,192,644
Add maximum dilutive impact of average shares issuable
under stock option and variable stock award plans (3) ......... 817,268 650,565 575,855
----------- ----------- -----------
Total Dilutive Shares ...................................... 10,198,301 9,994,591 9,768,499
=========== =========== ===========
Net Income Per Share:
Net Income Before the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. $ 4.83 $ 4.25 $ 3.74
Cumulative Effect of Accounting Changes (1) ..................... - - (.80)
Restructuring Charges (2) ....................................... (2.74) - -
----------- ----------- -----------
Net Income After the Cumulative Effect of Accounting
Changes or Restructuring Charges .............................. $ 2.09 $ 4.25 $ 2.94
=========== =========== ===========
(1) In 1992, the Corporation adopted, retroactive to January 1, 1992, Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". As a result of
adopting these standards, a one-time, non-cash net after tax charge of
$7.8 million was incurred.
(2) Reflects charges incurred in connection with the pending sale of the
Corporation's Processing Business to The Chase Manhattan Corporation which
are included in the Corporation's results of operations. For further
information on the sale, see the Proxy Statement/Prospectus dated February 9,
1995 for a special meeting of shareholders of the Corporation to be held on
March 22, 1995, filed herewith as Exhibit 99.1 which is incorporated herein
by reference.
(3) Assumes issuance of the maximum number of shares calculated as follows:
Stock option plans - computed using the period-end market price of the
Corporation's common stock, if it is higher than the average market price used
in calculating primary net income per share. Variable stock award plans -
computed assuming the issuance of performance stock awards that have been
accrued but not yet awarded.
</TABLE>
-2-
<PAGE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
SELECTED FINANCIAL DATA
Years Ended December 31,
(Dollars in Millions, ------------------------------------------------------
Except Per Share Amounts)* 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiduciary and Other Fees....................................... $295.6 $264.1 $235.8 $204.9 $184.2
Net Interest Income............................................ 108.1 116.2 108.9 96.1 89.4
Provision for Credit Losses.................................... (2.0) (4.0) (6.0) (6.0) (8.4)
Securities Gains (Losses), Net................................. (42.1) 3.0 2.8 1.6 -
Other Income................................................... 16.7 8.9 6.9 7.1 13.0
------ ------ ------ ------ ------
Total Operating Income Net of Interest Expense
and Provision for Credit Losses.............................. 376.3 388.2 348.4 303.7 278.2
Total Operating Expenses....................................... 341.9 315.5 289.5 254.9 259.7
------ ------ ------ ------ ------
Income From Operations Before Income Taxes and
Cumulative Effect of Accounting Changes...................... 34.4 72.7 58.9 48.8 18.5
Income Taxes................................................... 13.4 30.4 22.4 17.4 6.8
------ ------ ------ ------ ------
Income From Operations Before Cumulative Effect
of Accounting Changes........................................ 21.0 42.3 36.5 31.4 11.7
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes..................... - - (7.8) - -
------ ------ ------ ------ ------
Net Income..................................................... $ 21.0 $ 42.3 $ 28.8 $ 31.4 $ 11.7
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------
Net Income Per Share:
Primary:
Income From Operations Before Cumulative Effect
of Accounting Changes.................................... $ 2.12 $ 4.26 $ 3.76 $ 3.32 $ 1.24
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes................. - - (0.80) - -
------ ------ ------ ------ ------
Net Income................................................. $ 2.12 $ 4.26 $ 2.96 $ 3.32 $ 1.24
====== ====== ====== ====== ======
Fully Diluted:
Income From Operations Before Cumulative Effect
of Accounting Changes.................................... $ 2.09 $ 4.25 $ 3.74 $ 3.27 $ 1.23
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes................. - - (0.80) - -
------ ------ ------ ------ ------
Net Income................................................. $ 2.09 $ 4.25 $ 2.94 $ 3.27 $ 1.23
====== ====== ====== ====== ======
Cash Dividends Declared Per Share.............................. $ 2.00 $ 1.88 $ 1.72 $ 1.60 $ 1.60
Dividends Per Share as a Percentage of:
Fully Diluted Income From Operations Before Cumulative
Effect of Accounting Changes Per Share..................... 95.69% 44.24% 45.99% 48.93% 130.08%
Fully Diluted Net Income Per Share........................... 95.69 44.24 58.50 48.93 130.08
- -------------------------------------------------------------------------------------------------------------------------
At December 31:
Total Assets................................................. $3,223 $3,186 $2,951 $2,917 $2,778
Total Deposits............................................... 2,440 2,487 2,355 2,108 2,040
Long Term Debt............................................... 61 65 65 69 71
Stockholders' Equity......................................... 223 229 197 182 166
- -------------------------------------------------------------------------------------------------------------------------
As a Percentage of Average Stockholders' Equity:
Income From Operations Before Cumulative Effect
of Accounting Changes...................................... 9.24% 20.47% 18.64% 18.05% 6.75%
Net Income................................................... 9.24 20.47 15.28 18.05 6.75
As a Percentage of Average Total Assets:
Income From Operations Before Cumulative Effect
of Accounting Changes...................................... 0.53 1.11 1.05 1.09 0.46
Net Income................................................... 0.53 1.11 0.83 1.09 0.46
As a Percentage of Risk-Adjusted Period End Total Assets:
Tier 1 Capital............................................... 13.52 14.08 13.71 10.81 9.90
Total Capital................................................ 14.79 15.47 15.16 12.03 11.22
Tier 1 Leverage................................................ 5.68 5.60 5.78 6.68 6.72
Average Stockholders' Equity as a Percentage of
Average Total Assets......................................... 5.69 5.43 5.43 6.04 6.77
- -------------------------------------------------------------------------------------------------------------------------
* Columns may not tally due to roundings.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
FINANCIAL REVIEW
Overview
The Financial Review should be read in conjunction with the Consolidated
Financial Statements. The financial information presented in the
Financial Review has been prepared on a basis consistent with the
policies set forth in the Consolidated Financial Statements. U.S. Trust
Corporation ("the Corporation or Parent") is a financial services company
that provides fee-based asset management, fiduciary and securities
services to affluent individuals and institutions. The Corporation also
provides private banking services for its clients.
On November 18, 1994, the Corporation announced that it had entered
into an agreement with The Chase Manhattan Corporation ("Chase") under
which Chase will acquire the Corporation's institutional custody, mutual
funds servicing and unit trust businesses (the "Processing Business") and
certain of the Corporation's back office functions (collectively the
"Chase Acquired Business"). See "Pending Disposition and Merger
Transaction" in this Financial Review and "Notes to the Consolidated
Financial Statements No. 1" for details.
The following discussion of the Corporation's results of operations
and financial condition for each of the years ended December 31, 1994,
1993 and 1992 sets forth, where appropriate, relevant information
pertaining to the Chase Acquired Business or the Processing Business and
the Corporation's asset management, private banking, special fiduciary
and corporate trust businesses (the "Core Businesses").
The Corporation adopted, as of December 31, 1993, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("FAS 115"). See "Notes to
the Consolidated Financial Statements No. 5" for a discussion of the
impact of the adoption of FAS 115. The Corporation also adopted, as of
December 31, 1993, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," ("FAS 112") which
did not have a significant impact on the results of operations or
financial condition of the Corporation.
In 1992, the Corporation adopted, retroactive to January 1, 1992,
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," ("FAS 106")
and Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," ("FAS 109"). As a result of adopting these two accounting
standards, a one-time, non-cash net after tax charge of $7.8 million was
incurred. The following discussion of the Corporation's earnings
excludes the impact of this one-time net charge. For further discussion
of FAS 106 and FAS 109, see "Notes to the Consolidated Financial
Statements Nos. 10 and 17."
<PAGE>
U.S. TRUST CORPORATION
Significant Events and Developments
o The Corporation earned $21.0 million in 1994, compared to $42.3
million in 1993, a decrease of 50.4%. Fully diluted net income per
share was $2.09 compared to $4.25 in 1993. The Corporation has
incurred charges of $27.9 million (after taxes) in the fourth
quarter of 1994 associated with the pending transaction with Chase.
Excluding the $27.9 million of charges, 1994 net income would have
been $48.9 million, or $4.83 on a fully diluted per share basis.
o The return on average stockholders' equity was 9.24% compared to
20.47% for 1993. The Corporation's return on average
stockholders' equity would have been 21.27% if the aforementioned
$27.9 million of charges are excluded.
o The Corporation's Tier 1 Capital ratio, based on period end risk-
adjusted assets was 13.52% at December 31, 1994, compared to
14.08% at December 31, 1993.
Pending Disposition and Merger Transaction
The Corporation and Chase have entered into an agreement under which
Chase will acquire the Corporation's institutional custody, mutual funds
servicing and unit trust businesses (the "Processing Business") and
certain of the Corporation's back office operations (collectively the
"Chase Acquired Business") for $363.5 million in Chase common stock. The
transaction, which is subject to bank regulatory approvals, U.S. Trust
shareholder approval and a favorable ruling from the Internal Revenue
Service regarding its tax-free status, is expected to be consummated
during the second quarter of 1995.
Structurally, the transaction will consist of the following two
general steps. First, the Corporation will spin off to its shareholders
the assets not included in the Chase Acquired Business by establishing a
new corporation ("New USTC") to hold such assets and distributing its
shares to the shareholders of the Corporation on a one-for-one basis (the
"Disposition"). Second, the Corporation, which will then include only
the assets and liabilities of the Chase Acquired Business, will be merged
into Chase (the "Merger") and the shareholders of the Corporation will
receive shares of Chase common stock, based upon an exchange formula set
forth in the agreement, on a pro-rata basis. The exchange formula
stipulates that the exchange ratio will be calculated by dividing the
purchase price of $363.5 million by the average of the daily average of
the high and low sales prices of Chase common stock for the ten trading
days immediately before the closing date. The exchange formula also
establishes a floor market value for Chase common stock of $31 per share.
Therefore, the maximum number of Chase common shares that will be issued
in this transaction is 11,725,806 shares even if the market value of
Chase common stock should fall below $31 per share.
<PAGE>
U.S. TRUST CORPORATION
As part of the agreement, Chase will provide securities processing,
custodial, data processing and other services to New USTC under the five
year term of the servicing agreement at an annual base fee of
$10 million. The servicing agreement may be extended an additional two
to five years beyond its initial term.
The Processing Business accounted for approximately 35.9% of the
Corporation's total revenues, on a taxable equivalent basis, and
approximately 33.1% of profit contribution (defined as taxable equivalent
operating income excluding corporate overhead and income taxes) for the
year ended December 31, 1994, compared to 38.4% of total revenue and
37.3% of profit contribution in 1993, and 39.9% of total revenue and
43.9% of profit contribution in 1992. Total revenue and profit
contribution for the 1994 period exclude the gain realized from the sale
of Financial Technologies International L.P. and the losses on the sales
of securities related to the pending sale of the Processing Business (see
"Securities Transactions and Other Income" in this Financial Review for
additional information). The reduction in the Processing Business's
contribution to total revenue and profit contribution primarily reflects
a reduction in the amount of net interest income credited to the
Processing Business as a result of the decline in non-interest-bearing
sources of funds ("investable balances"). For the year ended
December 31, 1994, average investable balances were $1.2 billion, a
decline of $187 million from the comparable 1993 period. Substantially
all of the reduction in the average balance of investable balances was
attributable to the unit investment trust business ("UIT"). The level of
UIT investable balances is impacted by the volume of bonds held by trusts
that are called and refunded, which typically declines in periods of
rising interest rates. See "Net Interest Income" in this Financial
Review for further discussion of investable balances.
The Corporation expects to incur charges of up to $110 million
(after-tax) associated with various downsizing costs and other expenses
related to the transaction. The Corporation has charged $50.2 million
($27.9 million after tax) of securities losses and professional fees
related to the transaction in the fourth quarter 1994 operating results.
See "Notes to the Consolidated Financial Statements No. 1" for additional
information.
<PAGE>
U.S. TRUST CORPORATION
Fee Revenue
<TABLE>
Years Ended December 31,
------------------------------------------------
% Change
-------------
(Dollars In Thousands) 1994 1993 1992 94-93 93-92
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management $171,220 $152,362 $131,188 12.4 % 16.1%
Corporate Trust and Agency 21,641 18,775 16,916 15.3 11.0
-------- -------- --------
Total Core Businesses 192,861 171,137 148,104 12.7 15.6
-------- -------- --------
Processing Business:
Funds Services 75,527 68,196 63,412 10.7 7.5
Institutional Asset Services 27,177 24,742 24,308 9.8 1.8
-------- -------- --------
Total Processing Business 102,704 92,938 87,720 10.5 5.9
-------- -------- --------
Total Fiduciary and Other Fees $295,565 $264,075 $235,824 11.9 % 12.0%
-------- -------- -------- ---- ----
Total Fee Revenue as a Percent of Taxable
Equivalent Operating Income, Net of Interest
Expense and Provision for Credit Losses 69.5%* 67.0% 66.1%
======== ======== ========
- ---------------
* The 1994 ratio was calculated by adding to Operating Income, Net of Interest Expense
and Provision for Credit Losses the $44.2 million of security losses related to the
Disposition and Merger.
</TABLE>
Fiduciary and other fees ("Fee Revenue") are the largest component of
both the Core Businesses and Processing Business revenues. Fee-based
services provide a relatively stable core source of revenues that are
less subject to change in periods of interest rate volatility as compared
to net interest income. The credit loss experience from fee-based
activities has been and continues to be negligible.
Fee Revenue is based typically on the market value or par value of
assets under management and administration, the volume of securities
transactions, income collection transactions and other services rendered.
Most Asset Management Fee Revenue is determined on an incremental
scale so that as the value of a client's portfolio grows in size, the
Corporation receives a smaller percentage of the increasing value as fee
income. Therefore, market value or other incremental changes in a
portfolio's size do not necessarily have a proportionate impact on the
level of Fee Revenue.
<PAGE>
U.S. TRUST CORPORATION
In 1994, $144.3 million of Asset Management Fee Revenue was related
to the market value of assets held in clients' accounts, compared with
$133.8 million and $119.8 million, respectively, for the years ended
December 31, 1993 and 1992. The remaining Fee Revenue, principally
derived from corporate trust and agency fees, was related to transaction
- -based services.
The following table provides details of assets under management and
administration for the last six years. Unless otherwise noted, asset
values are measured at their estimated fair value.
<TABLE>
Compound
December 31, Growth
--------------------------------------------------- Rate
(Dollars In Billions) 1994 1993 1992 1991 1990 1989 89-94
------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Core Businesses:
Assets Under Management* $ 33.0 $ 32.2 $ 26.5 $ 21.9 $ 18.1 $ 18.0 12.91%
Personal Custody 8.2 7.9 6.0 6.8 6.1 4.7 11.79
Corporate and Municipal
Trusteeships and Agency
Relationships** 159.6 152.2 134.6 121.5 109.6 102.3 9.30
------ ------ ------ ------ ------ ------
Total Assets Under Management
and Administration for the
Core Businesses 200.8 192.3 167.1 150.2 133.8 125.0 9.94
------ ------ ------ ------ ------ ------
Processing Business:
Custody and Other Non-Managed
Assets:
Institutional Services 120.4 97.6 92.9 81.8 81.6 68.0 12.11
Funds Services*** 103.0 103.3 91.8 84.3 62.4 54.3 13.66
------ ------ ------ ------ ------ ------
Total Assets Under Management
and Administration for the
Processing Business 223.4 200.9 184.7 166.1 144.0 122.3 12.81
------ ------ ------ ------ ------ ------
Total Assets Under Management
and Administration $424.2 $393.2 $351.8 $316.3 $277.8 $247.3 11.40%
====== ====== ====== ====== ====== ====== =====
- ---------------
* Includes funds under management for clients of the Processing Business of approximately
$1.9 billion, $1.9 billion, $1.7 billion, $1.6 billion, $1.0 billion, and $0.9 billion at
December 31, 1994, 1993, 1992, 1991, 1990 and 1989, respectively.
** Includes corporate trust and agency and bond immobilization assets presented at par value.
*** Includes UIT assets presented at par value and mutual fund custody assets presented at fair
market value.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
Assets Under Management
Asset Management Fee Revenue is derived mainly from investment management
and related services to individuals and institutions. These services
include investment portfolio management, estate and tax planning and
personal custody. Asset Management Fee Revenue is based primarily on the
market value of the assets in clients' accounts. In general, Fee Revenue
is influenced by a variety of factors, including growth or decline of
stock and bond market levels, fee increases, revenue from new services,
outflow of assets due to terminating trusts, disbursements, gifts, etc.,
acquisitions, and new business. The increase in Asset Management Fee
Revenue during 1994 and 1993 is related to higher market values, new
business and acquisitions. Assets under management as of December 31,
1994 increased by 2.4% from the December 31, 1993 level.
Asset Management Fee Revenue in 1994 includes a full year of revenue
from U.S. Trust Company of the Pacific Northwest ("Pacific Northwest" -
formerly Capital Trust Company, a trust and investment management firm
acquired on July 7, 1993). Asset Management Fee Revenue in 1993 includes
six months of Fee Revenue from Pacific Northwest and a full year of Fee
Revenue from Campbell, Cowperthwait & Co., Inc. ("Campbell" - an
investment advisory company acquired in December 1992) and a full year of
Fee Revenue from Delafield, Harvey, Tabell ("Delafield" - an investment
advisory company acquired in April 1992). Asset Management Fee Revenue
in 1992 includes one month of Fee Revenue from Campbell and nine months
of Fee Revenue from Delafield. Fee Revenue from Pacific Northwest in
1994 and Fee Revenue from Campbell and Delafield in 1993 and 1992
represent less than 5% of total Asset Management Fee Revenue earned in
the respective years. Pacific Northwest accounted for 4.8% of total
assets under management at December 31, 1994. Campbell and Delafield
accounted for 5.6% and 4.0% of total assets under management as of
December 31, 1993 and 1992, respectively.
The Corporation believes it is well positioned to increase Asset
Management Fee Revenue due to favorable growth rates in the overall
affluent market, expansion into new geographic markets, selective
acquisitions, development of new services, solicitation of new market
segments and new business development. Increases in Asset Management Fee
Revenue are expected to come from the Corporation's Institutional Asset
Management business, where the Corporation has developed a dedicated
sales force and has expanded the range of investment products it offers.
Another key strategy for increasing Asset Management Fee Revenue is the
Corporation's recently implemented initiative to broaden the distribution
of its investment products via third parties.
As noted in the preceding table, assets under management include
assets under management for clients of the Processing Business.
Substantially all of these assets derive from short-term cash management
account relationships. The average rate charged for short-term cash
management is significantly less than the average rate charged on the
entire portfolio of assets under management. These short-term asset
management relationships are expected to leave the Corporation and be
managed by Chase upon the consummation of the Disposition and Merger.
<PAGE>
U.S. TRUST CORPORATION
Corporate Trust and Agency
Corporate Trust and Agency ("Corporate Trust") activities include the
indenture trustee business for corporate and municipal debt issues, as
well as complex new types of securities, and the bond immobilization
business. Corporate Trust Fee Revenue is affected by the volume of new
debt issuances and redemptions at, or in advance of, maturity of existing
issues. The volume of corporate and municipal trusteeships and agency
relationships (measured by the par value of the outstanding debt)
increased 4.8% in 1994 and 13.1% in 1993.
Assets Under Administration - The Processing Business
Institutional asset services ("IAS") includes master trust and custody
services, securities lending and global custody services to corporate
employee benefit funds, public funds, financial institutions and
endowments and foundations. IAS Fee Revenue is influenced by the market
value of its accounts and transactional activity. IAS assets
administered in custody accounts increased 23.4% in 1994 and 5.1% in
1993.
Funds Services provides custody administration, fund accounting and
administration and transfer agent activities for open and closed-end
mutual funds and custodian, recordkeeping, income collection and
disbursement, and transfer agent services for taxable and tax-exempt unit
investment trusts. Funds Services assets under administration decreased
by 0.3% in 1994 and increased by 12.5% in 1993. The 1994 decrease in
assets under administration reflects a normal decline in assets held in
unit investment trusts as the underlying bonds mature and units are
redeemed by the unit holders, almost entirely offset by increases in
mutual fund custody business. The increase in Funds Services assets
under administration in 1993 is primarily attributable to expanded
business with mutual funds, both open and closed-end. The par value of
bonds held in custody for unit investment trusts has declined in 1992 and
1993, reflecting accelerated prerefundings and redemptions of municipal
securities underlying unit investment trusts by issuers taking advantage
of decreasing interest rates during the same period. While this reduced
fee income earned from unit investment trusts in 1993 and 1992, the
redemption activity had also temporarily increased the volume of non
interest bearing deposits reflecting uninvested balances derived from
these accounts. See "Net Interest Income" in this Financial Review for
an expanded discussion of non-interest-bearing balances derived from the
Processing Business.
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Securities Transactions and Other Income
Years Ended December 31,
------------------------------------------------
% Change
-------------
(Dollars In Thousands) 1994 1993 1992 94-93 93-92
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Other Income:
Securities Gains (Losses), Net $(42,118) $ 3,025 $ 2,801 - % 8.0%
Other 16,748 8,863 6,939 89.0 27.7
-------- -------- --------
Total Other Income $(25,370) $ 11,888 $ 9,740 - % 22.1%
======== ======== ======== ==== ====
</TABLE>
Net securities losses in the fourth quarter of 1994 totaled $44.2 million
($23.3 million after-taxes). During the 1994 fourth quarter, the
Corporation sold approximately $800 million of long and medium-term U.S.
Government Agency and Treasury Securities. The sales occurred as a
result of the fundamental change in the Corporation's asset and liability
structure as a result of signing the agreement to sell the Processing
Business to Chase. The deposit liabilities associated with the
Processing Business were a source of long-term funds which financed
certain of the Corporation's long and medium-term interest earning
investments. With the anticipated closing date of the transaction
occurring during the second quarter of 1995, the deposit liabilities
become short-term in nature. As a result, the securities sales were
consummated to substantially effect a rebalancing of the Corporation's
overall asset and liability structure. During 1994, net securities
losses were $42.1 million compared to a net gain of $3.0 million in 1993.
The proceeds from the sales were invested in short-term investment
securities and used to reduce short-term borrowings.
Other Income for 1994 includes $6.4 million ($3.4 million after
- -taxes or $0.36 per fully diluted share for the fourth quarter and $0.33
per fully diluted share for the year) resulting from the sale of the
Corporation's partnership interest in Financial Technologies
International L.P. in the fourth quarter of 1994.
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Net Interest Income (Taxable Equivalent Basis)
Years Ended December 31,
----------------------------------
(Dollars In Thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest Income $187,116 $169,600 $173,211
Taxable Equivalent Adjustment 4,654 5,810 8,237
-------- -------- --------
Total Interest Income 191,770 175,410 181,448
Interest Expense 79,004 53,358 64,323
-------- -------- --------
Net Interest Income $112,766 $122,052 $117,125
======== ======== ========
Percentage Increase (Decrease) from Prior Period (7.6)% 4.2% 10.2%
======== ======== ========
</TABLE>
Significant influences on the Corporation's net interest income over the
past three years included: the average balance of net non-interest
bearing funds primarily attributable to the non-interest bearing deposits
generated by the Processing Business; a reduction in the average yield on
short-term and variable rate investments and loans; and an increase in
total interest earning assets.
<TABLE>
Years Ended December 31,
----------------------------
(Dollars In Millions) 1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Average Volume:
Interest Earning Assets $3,232 $3,086 $2,834
Interest Bearing Liabilities 2,032 1,699 1,674
------ ------ ------
Net Interest Earning Assets $1,200 $1,387 $1,160
====== ====== ======
Percentage Increase (Decrease) from Prior Period (13.5)% 19.6% 38.0%
====== ====== ======
Non-Interest Bearing Deposits $1,565 $1,761 $1,508
====== ====== ======
Percentage Increase (Decrease) from Prior Period (11.1)% 16.8% 47.7%
====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets: 5.93% 5.68% 6.40%
Cost of Funding Interest Earning Assets 2.44 1.73 2.27
------ ------ ------
Net Yield on Interest Earning Assets 3.49% 3.95% 4.13%
====== ====== ======
</TABLE)
<PAGE>
U.S. TRUST CORPORATION
The net yield on interest earning assets is dependent upon the
Corporation's average level of non-interest bearing funds, the maturity
structure of the Corporation's interest earning assets and interest
bearing liabilities and the general interest rate environment. If the
average volume of all sources of funds is stable, the net yield will
generally be higher in a rising interest rate environment. Conversely,
in a declining interest rate environment, the net yield will be lower.
The volume of the Processing Business's non-interest bearing
deposits, however, is generally inversely related to the level of
interest rates. Thus, in periods of decreasing interest rates, the
average balance of non-interest bearing deposits derived from the
Processing Business tends to increase, whereas in periods of rising
interest rates, the average balance typically declines. Interest rates
were low in 1993 and the Processing Business experienced its highest
level of average deposit balances. Average non-interest bearing
deposits, net of uncollected funds, for the Processing Business amounted
to $776 million in 1994, $983 million in 1993 and $832 million in 1992.
Temporary inflows of deposits, mainly related to the Processing
Business, are invested in high quality liquid short-term financial
instruments that ensure the Corporation an adequate rate of return, while
maintaining liquidity and credit quality to satisfy the eventual outflow
of the deposits.
For the year ended December 31, 1994, average interest earning
assets increased by $146 million from the corresponding 1993 period,
consisting primarily of $174 million of private banking loans, offset by
a net decline of $28 million in securities and short-term financial
instruments. Average interest earning assets increased in 1993 by
$252 million from the 1992 period consisting primarily of an increase of
$148 million of private banking loans and a net increase of $104 million
in securities and short-term financial instruments. In 1993, the higher
volume of average interest earning assets was funded mainly by net non
interest bearing funds, derived principally from the Processing Business.
For the year ended December 31, 1994, the average balance of non-interest
bearing funds derived principally from the Processing Business declined
by $187 million from the corresponding 1993 period. In 1994, the higher
volume of average interest earning assets was funded primarily by
increases in average interest bearing deposits and short-term borrowings.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses, fee income and other income for the Core Businesses and
the Processing Business for the years ended December 31, 1994, 1993 and
1992 are as follows:
<PAGE>
U.S. TRUST CORPORATION
</TABLE>
<TABLE>
Years Ended December 31,
----------------------------------
(Dollars In Thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Core Businesses Revenues $270,200 $236,815 $206,029
Processing Business Revenues 150,284 151,390 142,423
-------- -------- --------
Total Revenues $420,484* $388,205 $348,452
======== ======== ========
- ----------------
* In 1994, Total Revenues exclude the $44.2 million of securities losses incurred in
anticipation of the sale of the Chase Acquired Business.
</TABLE>
Revenues of the Core Businesses and the Processing Business are allocated
in accordance with the allocation methodologies utilized by the
Corporation's internal management reporting system. The amount of net
interest income allocated to the respective businesses is based upon the
average net deposit balances supplied by such businesses multiplied by an
appropriate, internally-generated, interest rate. The interest rate is
based upon the rates earned by the Corporation's long- and short-term
securities for the relevant period. Fee Revenue is allocated directly to
the businesses performing the service from which the revenue is derived.
Operating Expenses
The following table provides details of operating expenses other than
interest expense and provision for credit losses for the last three
years.
<TABLE>
Years Ended December 31,
----------------------------------
(Dollars In Thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Salaries $135,415 $120,770 $104,506
Employee Benefits and Incentive Compensation 72,068 68,383 60,426
Net Occupancy 40,030 40,035 37,420
Equipment 18,371 18,536 18,591
Other 76,051 67,796 68,589
-------- -------- --------
Total $341,935 $315,520 $289,532
======== ======== ========
Percentage Increase From Prior Period 8.4% 9.0% 13.6%
======== ======== ========
Total Operating Expenses as a Percent of Taxable Equivalent
Operating Income, Net of Interest Expense and Provision
for Credit Losses 79.0%* 80.1% 81.2%
======== ======== ========
<PAGE>
U.S. TRUST CORPORATION
- ----------------
* The 1994 ratio has been calculated excluding the impact of $44.2 million of securities losses
and $6.0 million of professional fees and related costs incurred in connection with the sale of
the Chase Acquired Business.
</TABLE>
Salaries in 1994 increased 12.1% from 1993 and increased 15.6% in 1993
from 1992. The increases were due mainly to staff additions in the asset
management business and the mutual funds servicing division within the
Processing Business. The number of full-time equivalent employees
increased 4.0% to 2,676 at December 31, 1994, compared to 2,574 at
December 31, 1993. During 1993, the number of full-time equivalent
employees increased 12.1% to 2,574 from 2,296. Excluding the impact of
the acquisition of Pacific Northwest in 1993, salaries increased by 10.6%
in 1994. Excluding the impact of the acquisitions of Delafield, Campbell
and Pacific Northwest, salaries increased by 13.3% in 1993.
Employee benefits and incentive compensation increased 5.4% in 1994
from 1993 and increased 14.7% in 1993 compared with 1992. These changes
were due primarily to incentive award plans, which are determined based
upon the Corporation's financial performance, adjusted to offset the
impact of nonrecurring charges and credits, as measured by its return on
stockholders' equity, and to other employee benefits whose expense level
is a function of staffing levels.
In addition to the approximately 1,150 of the Corporation's
employees that will be employed by Chase following the Disposition and
Merger, the Corporation will reduce its staffing levels by approximately
153 employees, which will reduce corporate staff salaries and related
employee benefits and incentive compensation by an estimated
$12.4 million on an annualized basis. It is anticipated that these
employees will be terminated by the Closing Date.
Occupancy charges remained stable in 1994 compared with 1993 and
increased 7.0% in 1993 from the 1992 level. The increase in 1993
reflects the impact of the asset management acquisitions. The Chase
Acquired Business includes leased space in the building located in New
York at 770 Broadway and the leased premises of Mutual Funds Service
Company in Boston. As of the Closing Date, the transfer of those
premises is expected to reduce the occupancy expense of the Corporation
by approximately $11 million on an annualized basis.
Other expenses in 1994 increased 12.2% compared to 1993, while
decreasing 1.2% in 1993 compared to 1992. The 1994 increase includes
$6.0 million of professional fees and related costs associated with the
Disposition and Merger. The 1993 decline is a result, in part, of lower
costs related to real estate acquired in debt restructurings.
<PAGE>
U.S. TRUST CORPORATION
As part of the Disposition and Merger, Chase will acquire the
Corporation's back office operations. The Corporation and Chase will
enter into a Services Agreement pursuant to which Chase will furnish
necessary securities processing, custodial, data processing and other
services to the Corporation. The initial term of the Services Agreement
will be for five years beginning on the Closing Date, with certain
renewal options. In consideration of the services provided to it under
the Services Agreement, during the initial term, the Corporation will pay
Chase an annual base fee of $10 million, which is significantly less than
the Corporation's estimate of the annual cost of providing such services
to itself.
Operating expenses applicable to the Core Businesses and the
Processing Business for the years ended December 31, 1994, 1993 and 1992
are as follows:
<TABLE>
Years Ended December 31,
----------------------------------
(Dollars In Thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Core Businesses:
Salaries and Benefits $120,036 $108,481 $ 91,355
Net Occupancy 21,125 18,778 16,996
Other 52,974 46,143 46,652
-------- -------- --------
Subtotal 194,135 173,402 155,003
-------- -------- --------
Processing Business:
Salaries and Benefits 72,798 61,855 58,021
Net Occupancy 10,616 9,360 8,792
Other 30,190 31,988 29,152
-------- -------- --------
Subtotal 113,604 110,130 95,965
-------- -------- --------
Corporate Overhead 34,196* 31,988 38,564
-------- -------- --------
Total Operating Expenses $341,935 $315,520 $289,532
======== ======== ========
- ----------------
* Includes $6.0 million of professional fees and related costs incurred in connection with the sale of
the Chase Acquired Business.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
Operating expenses associated with the Core Businesses and Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and
policies have been developed and implemented with the objective of
reflecting the economics of the respective businesses. Direct costs are
those expenses that can be directly attributable to a specific business
activity. Direct expenses include actual salaries and benefits of the
employees of the business, net occupancy costs based upon actual space
utilized and furniture and equipment specifically employed by the
business.
Methodologies have been developed to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a
direct relationship between the level of business activity and the amount
of cost incurred. The guidelines employ volume or percentage allocation
bases or the activity of other expense or balance sheet accounts.
Indirect costs include computer services, securities clearing and bank
operations services transfer charges which are allocated on the basis of
volume statistics, and systems man month charges.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and
other general purpose corporate expenses.
Income Taxes
The effective tax rates on income before income taxes and cumulative
effect of accounting changes for 1994, 1993 and 1992 were 39.0%, 41.8%
and 38.0%, respectively. The decline in the effective tax rate in 1994
from 1993 is due to lower state and local income taxes. The increase in
the 1993 effective tax rate from 1992 is due to the decline in tax-exempt
income as a result of maturities and redemptions of state and municipal
bonds and the impact of the increase in the federal corporate income tax
rate that was retroactive to January 1, 1993.
Financial Condition
Capital and Regulatory Ratios
The Corporation has maintained its strong capital position throughout
1994. The ratio of Tier 1 capital at December 31, 1994 to period end
risk-adjusted assets (as defined by the Federal Reserve Board) was
13.52%. The ratio of Total Capital at December 31, 1994 to period end
risk-adjusted assets was 14.79%. The Tier 1 leverage ratio (Tier 1
capital as of the period end divided by quarterly (3 month) total average
assets) was 5.68%.
For the year ended December 31 1994, 90,000 shares of common stock
were acquired under the Corporation's share repurchase program at an
average price of $50.81 per share. For the same period during 1993,
157,500 shares were repurchased at an average cost of $53.88 per share.
<PAGE>
U.S. TRUST CORPORATION
One of the principal purposes of the Corporation's common stock
repurchase program has been to provide a supply of common shares for
issuance under the Corporation's various common stock incentive and
compensation plans. Such common shares have been acquired through
systematic purchases in the open market in amounts deemed sufficient to
satisfy the Corporation's immediate and near-term (i.e., less than two
years) obligations to issue common shares under its benefit plans.
During 1994, the Corporation issued 182,500 common shares under its
various stock-based plans.
The adoption of a stock repurchase program by New USTC following the
Disposition and Merger would be subject to (i) the approval of the New
USTC's Board, (ii) maintaining regulatory capital ratios necessary to
remain "well capitalized", (iii) maintaining appropriate parent company
liquidity, and (iv) existing statutory authority that permits repurchases
of shares in an amount that does not exceed 10% of the parent company's
stockholders' equity at the beginning of the year.
Asset/Liability Management
The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between interest sensitive assets and interest
sensitive liabilities, and to manage the size and composition of the
balance sheet so as to maximize net interest income, while complying with
bank regulatory agency capital standards.
The Corporation's asset mix is predominantly liquid and low-risk,
while its exposure to credit risk from lending activities is well
controlled.
<TABLE>
Years Ended December 31,
Average Balances --------------------------------------------------------
(Percentage) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Due From Banks 8.1% 8.5% 8.3%
Short-Term Financial Instruments 8.2 14.7 11.5
Marketable Securities 39.6 37.2 42.5
----- ----- -----
Total Cash, Short-Term Financial Instruments
and Marketable Securities 55.9 60.4 62.3
Loans, Net of Allowance for Credit Losses 32.4 28.5 26.8
Other Assets 11.7 11.1 10.9
----- ----- -----
Total Assets 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
In excess of 55% of average total assets consist of cash and due from
banks, short-term financial instruments and readily marketable
securities. The securities portfolio is concentrated in investments in
U.S. Government and Federal Agencies securities. See "Notes to the
Consolidated Financial Statements No. 5" for additional details
concerning securities.
The loan portfolio is currently the second largest category of
average total assets, compared to most other banking institutions where
the loan portfolio is the largest component of interest earning assets.
The Corporation's loan portfolio is comprised primarily of loans to
private banking customers. Average loans increased $212.2 million, or
19.4%, to $1,307.9 million at December 31, 1994, from $1,095.7 million in
1993. Residential real estate mortgages accounted for approximately 65%
of the increase in the portfolio. Average private banking loans, which
comprise approximately 89% of total loans outstanding, grew by
$174.5 million, or 17.7% from 1993. In excess of 68% of average private
banking loans are secured by residential mortgages. Average loans
increased by 16.4% in 1993, with average private banking loans increasing
by 17.7%.
As part of its overall asset and liability management process, the
Corporation uses interest rate swaps ("Swaps") and forward rate
agreements ("FRAs") as hedges. Swaps are used to hedge the net yield
earned on pools of fixed rate residential real estate mortgage loans
originated in the year of the Swap's inception. The following table
provides details, as of December 31, 1994, 1993 and 1992, of the
notional amounts of Swaps by maturity and the related average interest
rates paid and received. The Corporation is a fixed rate payor on all of
its Swaps.
<TABLE>
Maturing
----------------------------------
Within 1 1 to 5
Year Years Total
(Dollars In Thousands) -------- -------- --------
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1994:
Fixed Pay Swaps $ 42,000 $ 44,375 $ 86,375
Average Rate Paid 6.8486% 7.0047% 6.9288%
Average Rate Received* 5.7426% 6.0806% 5.9163%
December 31, 1993:
Fixed Pay Swaps $ 42,000 $ 61,375 $103,375
Average Rate Paid 8.9464% 7.3274% 7.9852%
Average Rate Received* 3.3938% 3.4182% 3.4083%
December 31, 1992:
Fixed Pay Swaps $ 14,000 $ 79,875 $ 93,875
Average Rate Paid 8.8357% 8.7814% 8.7895%
Average Rate Received* 3.5910% 3.6995% 3.6833%
<PAGE>
U.S. TRUST CORPORATION
- ---------------
* Represents the average variable rate that will be received by the Corporation
based upon the rate in effect at the latest variable rate reset date of each
Swap.
</TABLE>
Customer deposit balances associated with the Processing Business have
provided the Corporation with a stable, long-term source of funds that
historically has been used to finance fixed-rate loans and investments.
In the fourth quarter of 1994, the Corporation sold over $800 million of
U.S. Government Treasury and Agency securities in anticipation of the
closing of the Disposition and Merger and the resultant need to fund the
deposit balances being transferred as part of the Chase Acquired
Business. The Corporation will retain most, if not all, of its fixed
rate loan portfolio. As a result, the Corporation's use of Swaps as an
asset/liability management tool is expected to increase, as a greater
proportion of the Corporation's fixed rate assets will be funded with
short-term interest bearing liabilities. In addition, the Corporation
may issue term financing or sell loans to maintain an appropriate
matching of its asset/liability structure.
The impact of the Corporation's hedging activities upon net interest
income for the years ended December 31, 1994, 1993 and 1992, are detailed
in the following table.
<TABLE>
For the Years Ended December 31,
----------------------------------------
(Taxable Equivalent Basis; Dollars In Thousands) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Income:
As Reported $112,766 $122,052 $117,125
Excluding Hedging Activities $116,007 $127,112 $122,092
Net Yield on Interest Earning Assets:
As Reported 3.49% 3.95% 4.13%
Excluding Hedging Activities 3.59% 4.12% 4.31%
</TABLE>
The preceding table presents the impact of the Corporation's hedging
activities on net interest income. The difference between the results
"As Reported" and "Excluding Hedging Activities" reflects the cost of
utilizing swaps to hedge interest rate risk and lock in a specified level
of return.
Securities Available for Sale
During 1994, the Corporation purchased $1,283.4 million of securities
(primarily U.S. Government agency and Treasury securities ($1,269.3
million)) classified as available for sale.
<PAGE>
U.S. TRUST CORPORATION
The Corporation's portfolio of securities classified as available
for sale is principally comprised of the following: U.S. Treasury fixed
rate obligations with weighted average original maturities of one and one
half years (58%); Government National Mortgage Association ("GNMA") fixed
rate mortgage-backed securities ("Fixed Rate GNMAs") and GNMA adjustable
rate mortgage-backed securities ("GNMA ARMs") (21%); obligations of
states and municipalities (7%) and variable rate collateralized mortgage
obligations backed by GNMAs ("CMOs") (6%). GNMAs are backed by the full
faith and credit of the U. S. Government.
The amortized cost of securities available for sale exceeded their
market value by $5.8 million at December 31, 1994. The market value of
securities available for sale exceeded their amortized cost by
$16.5 million at December 31, 1993. The decrease in market value
relative to amortized cost reflected several factors. First, in the
first quarter of 1994, high yielding available for sale securities
(mainly Treasuries) were sold for a $2.0 million gain, and the proceeds
from sales, maturities, calls and mandatory redemption of securities of
$258.6 million were reinvested (mainly in Treasuries) at then-lower
prevailing interest rates. Second, since the beginning of 1994, interest
rates have significantly increased. For example, the Federal funds
interest rate increased 250 basis points from January to December 1994.
In the fourth quarter of 1994, the Corporation sold $390.0 million
of U.S. Treasury Notes in addition to $41.9 million of securities
available for sale sold in January 1994. (See "Securities Transactions
and Other Income" in this Financial Review for additional information.)
Securities Held to Maturity
During 1994, the Corporation purchased $402.5 million of securities
classified as held to maturity, primarily consisting of U.S. Government
agency securities ($388.4 million).
In the fourth quarter of 1994, the Corporation sold approximately
$412.0 million of U.S. Government Agency securities classified as held to
maturity. (See "Securities Transactions and Other Income" in this
Financial Review for additional information.) No securities are
classified as held to maturity at December 31, 1994. At December 31,
1993, the market value of securities held to maturity was $87.1 million,
which exceeded their carrying amount by $300,000. A reconciliation of
the activity in held to maturity securities for the year ended
December 31, 1994 is provided below:
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
(Dollars In Thousands) 1994
- --------------------------------------------------------------------------------
<S> <C>
Balance, Beginning of Year $ 86,748
Purchases 402,502
Proceeds from Sales (379,954)
Realized Losses on Sales (32,168)
Proceeds from Maturities, Calls and Mandatory Redemptions (46,229)
Transfers to Available for Sale (28,884)
Net Amortization of Premium (2,015)
----------
Balance, End of Year $ -
==========
</TABLE>
Impact of the Disposition and Merger on the Investment Portfolio
The Corporation anticipates that after the Disposition and Merger New
USTC's securities portfolio will be concentrated in shorter-term U.S.
Government Treasury securities and floating rate CMO's collateralized by
GNMA mortgage pass-through securities. A lesser amount will be invested
in GNMA mortgage pass-through securities and tax-exempt state and
municipal obligations. Tax-exempt state and municipal securities are
largely fixed-rate investments with an average life of approximately 4.4
years and a duration of approximately 3.3 years. GNMA securities are
mostly 15 year original maturity securities and 30 year original maturity
securities with a remaining maturity of about 20 years. The average life
of the GNMA portfolio is about 7.4 years and the duration is about 5.1
years.
The shorter term portfolio of U.S. Government Treasury Securities
and floating rate CMO's will be primarily used for liquidity. The GNMAs
and state and municipal obligations are intended to provide longer term
returns with low credit risk.
Mortgage Securities and Prepayment Risk
At December 31, 1994, the Corporation held GNMA and CMO securities
("mortgage securities") having a carrying value of approximately
$279 million in its available for sale portfolio. While these mortgage
securities, as well as the Corporation's residential real estate mortgage
loans ("mortgage loans"), are subject to prepayment risk, management
believes that these are appropriate investments for the Corporation.
Historically, relatively high levels of non-interest bearing deposits
derived from the Processing Business helped to mitigate the financial
risk associated with the unpredictable experience of these holdings.
<PAGE>
U.S. TRUST CORPORATION
Impact of the Disposition and Merger on Liquidity
The Corporation requires access to funds sufficient to pay dividends to
common shareholders, interest and principal to debt holders and for other
corporate purposes, such as loans and capital investments in affiliates
and purchases of treasury stock.
Historically, the Corporation has maintained strong liquidity at
both the parent and the operating subsidiaries. While the Disposition
and Merger will have a significant effect on capital resources and the
overall asset and liability structure, the Corporation believes that New
USTC will maintain sufficient liquidity at the parent and at each of its
active subsidiaries.
In connection with the Disposition and Merger, United States Trust
Company of New York will redeem its outstanding 8 1/2% Capital Notes Due
2001. The funds required to redeem the Capital Notes will be obtained
through normal business operations.
The Corporation also will satisfy and discharge the $30 million
balance of its 8% Notes due 1996. The funding for such satisfaction and
discharge will be provided by cash on hand and dividends from
subsidiaries.
Additional sources of liquidity will include a new multi-year
$35 million credit facility which the Corporation is currently
negotiating. The Corporation expects that the new facility will have
terms and conditions at least as favorable as the Corporation's existing
credit facility. The existing credit facility is a $25.0 million
revolving, unsecured credit arrangement with a major financial
institution. At December 31, 1994, the Corporation had no borrowings
outstanding under its revolving credit arrangement The Corporation
expects that the new credit facility will be finalized prior to the
consummation of the Disposition and Merger. Additionally, New USTC may
borrow, subject to certain regulatory restriction, on a fully
collateralized basis from its affiliate banks.
Interest Rate Sensitivity
Interest rate risk arises from differences in the timing of repricing
assets and liabilities. One measure of interest rate risk is the
difference in asset and liability repricing on a cumulative basis within
a specified time frame. The following table provides the components of
the Corporation's interest rate sensitivity gaps at December 31, 1994.
Gap analysis has inherent limitations as an analytical tool because it
only measures the Corporation's exposure at a single point in time.
Exposure to interest rates is constantly changing as a result of the
Corporation's ongoing business and its management initiatives.
Accordingly, the gap table cannot be used to predict the Corporation's
interest sensitivity position after the Disposition and Merger. Certain
actions that the Corporation has taken in response to the transaction
have been described in "Impact of the Disposition and Merger on
Liquidity" section of this Financial Review.
<PAGE>
U.S. TRUST CORPORATION
As set forth in the following table, as of December 31, 1994, the
Corporation had more liabilities repricing than assets (liability
sensitive) in the 0-3 month and 4-6 month categories, reflecting the
impact of the Disposition and Merger on the classification of Processing
Business non-interest bearing deposits. In general, when an enterprise
is liability sensitive, its net interest income will improve in a
declining interest rate environment and will decline in a rising interest
rate environment. Conversely, an asset sensitive enterprise will realize
a benefit in net interest income if rates are rising and will have lower
net interest income in a falling rate environment.
<PAGE>
<TABLE>
U.S. TRUST CORPORATION
0-3 4-6 7-12 1-5 Over
(Dollars in Thousands) Months Months Months Years 5 Years Total
---------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Bearing Deposits
with Banks $ 21,524 $ -- $ -- $ -- $ -- $ 21,524
Securities Available for Sale 427,759 239,582 132,443 168,421 65,321 1,033,526
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 120,000 -- -- -- -- 120,000
Loans, Net of Allowance for
Credit Losses 980,241 18,574 35,118 211,649 366,617 1,612,199
Cash and Other Non-Interest
Earning Assets 212,316 23,116 28,643 68,683 103,204 435,962
---------- --------- --------- ---------- --------- ----------
Total Assets 1,761,840 281,272 196,204 448,753 535,142 3,223,211
========== ========= ========= ========== ========= ==========
Liabilities and Stockholders' Equity
Non-Interest Bearing Deposits 134,278 745,532 45,480 106,248 -- 1,031,538
Interest Bearing Deposits 1,378,437 7,601 14,468 8,327 -- 1,408,833
Federal Funds Purchased,
Securities Sold Under
Agreements to Repurchase
and Other Borrowings 350,515 -- -- -- -- 350,515
Accounts Payable and Accrued
Liabilities 44,460 45,465 38,030 9,239 10,884 148,078
Long Term Debt 41,753 2,020 11,080 6,071 60,924
Stockholders' Equity -- -- -- -- 223,323 223,323
---------- --------- --------- ---------- --------- ----------
Total Liabilities and
Stockholders' Equity 1,907,690 840,351 99,998 134,894 240,278 3,223,211
---------- --------- --------- ---------- --------- ----------
Asset/(Liability) Sensitivity
Gap (145,850) (559,079) 96,206 313,859 294,864 --
---------- --------- --------- ---------- --------- ----------
Interest Rate Swaps * 48,750 (1,125) (3,250) (44,375) -- --
---------- --------- --------- ---------- --------- ----------
Interest Rate Sensitivity Gap (97,100) (560,204) 92,956 269,484 294,864 --
---------- --------- --------- ---------- --------- ----------
Cumulative Interest Rate
Sensitivity Gap $ (97,100) $(657,304) $(564,348) $ (294,864) $ -- $ --
========== ========== ========== ========== ========= ==========
- ---------------
* Includes $86,375 of total outstanding notional principal of Swaps less $37,625 of Swaps
maturing or amortizing within three months.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
Following the Disposition and Merger, New USTC will not have access to
non-interest bearing deposits derived from the Processing Business. The
Corporation has taken actions to reduce its exposure to fixed rate
investments through its sale of held to maturity securities and to
rebalance its asset/liability mix through the sale of certain available
for sale securities. See "Asset/Liability Management" in this Financial
Review.
The Disposition and Merger will have no direct impact on the
Corporation's private banking loan portfolio. Approximately 50% of the
current loan portfolio is made up of fixed rate mortgages. The fixed
rate mortgage portfolio has an average maturity of about 7.4 years and a
duration of about 5.1 years. While it is anticipated that the portion of
fixed rate loans will remain about constant, changes in the level and
direction of interest rates will cause prepayments of existing loans and
origination of new fixed rate loans to vary. Consequently the proportion
of fixed rate loans may vary from period to period.
Asset Quality
The Corporation's loan portfolio is comprised primarily of loans to
private banking customers. Average loans increased $212.2 million, or
19.4%, to $1.3 billion at December 31, 1994, from $1.1 billion in 1993.
Residential real estate mortgages accounted for approximately 65% of the
increase in the portfolio.
An analysis of the allowance for credit losses for the years ended
December 31, 1994, 1993 and 1992, follows.
<TABLE>
(In Thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $13,393 $11,676 $ 8,661
------- ------- -------
Provision charged to income 2,000 4,000 6,000
------- ------- -------
Recoveries 805 1,817 581
Charge-offs (1,499) (4,100) (3,566)
------- ------- -------
Net charge-offs (694) (2,283) (2,985)
------- ------- -------
Balance, December 31 $14,699 $13,393 $11,676
======= ======= =======
Ratios:
Allowance to Average Loans 1.12% 1.22% 1.24%
Net Charge-Offs to Average Loans 0.05 0.21 0.32
Allowance to Loans at Year-End 0.90 0.96 0.93
Net Charge-Offs to Loans at Year-End 0.04 0.16 0.24
Nonperforming Assets to Average Loans and Real Estate Owned 1.42 1.58 2.33
Allowance to Nonperforming Loans 230.72 223.03 135.75
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
The provision for credit losses in 1994 was $2.0 million, compared to
$4.0 million and $6.0 million in 1993 and 1992, respectively. The
provision for credit losses reflects the addition to the allowance for
credit losses that management deems appropriate to maintain the allowance
at a level adequate when related to the risk of loss inherent in the
credit portfolio. In assessing adequacy, management relies on its
ongoing review of specific credits, on past experience, present credit
portfolio composition and general economic and financial considerations.
See "Summary of Credit Loss Experience" on page 48 for a more detailed
discussion of the allowance for credit losses. The improvement in these
ratios between December 31, 1994 and December 31, 1993, reflects a net
addition to the allowance for credit losses since December 31, 1993 as
the provision has exceeded net loan charge-offs.
At December 31, 1994, the loan portfolio included loans to
individuals involved in the financial services industry of approximately
$420 million. The Corporation's credit loss experience with these loans
has been excellent. Net charge-offs from loans to individuals involved
in the financial services industry amounted to $438,000 in 1994, $237,000
in 1993 and $707,000 in 1992. Such net charge-offs as a percentage of
average total loans amounted to 3 basis points, 2 basis points and 8
basis points in 1994, 1993 and 1992, respectively.
Nonperforming assets, which include non-accrual and restructured
loans and real estate acquired in debt restructurings, are as follows:
<TABLE>
December 31,
---------------------
(In Thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual and restructured loans $ 6,371 $ 6,005
Real estate acquired in debt restructurings 12,362 11,542
------- -------
Total nonperforming assets $18,733 $17,547
======= =======
</TABLE>
After the consummation of the Disposition and Merger, New USTC's loan
portfolio will become a more significant percentage of total interest
earning assets. It is not anticipated that the Disposition and Merger
will effect the quality of the loan portfolio.
Acquisitions and Subsidiaries
The Corporation's business strategy calls for expansion of its asset
management customer base in key areas of wealth concentration through the
acquisition of investment advisory firms, the de novo establishment of
subsidiaries and the establishment of branch offices of existing
subsidiaries. A summary of these activities follows.
<PAGE>
U.S. TRUST CORPORATION
o On January 17, 1995, the Corporation announced an agreement to
acquire the individual account business of J. & W. Seligman & Co.
Inc., and to purchase J. & W. Seligman Trust Company. J. &
W. Seligman & Co. Inc., is a privately held investment manager and
advisor located in New York. Under the agreement, the Corporation
will pay up to $20 million in cash for the business being acquired
(approximately $900 million in assets under management). The
transaction, which is subject to approval by the Federal Reserve
Board and New York State banking authorities, is expected to close
during the second quarter of 1995.
o In July 1994, U.S. Trust Company of Florida Savings Bank, located in
Palm Beach, converted the Boca Raton sales office into a full-
service branch office. In 1992, a branch office was opened in
Naples, Florida. U.S. Trust Company of Florida Savings Bank,
including the Boca Raton and Naples branch offices, had
approximately $1.2 billion of assets under management at December
31, 1994.
o In June 1993, U.S. Trust Company of Connecticut ("UST Connecticut")
was opened for business as a limited purpose trust company. At
December 31, 1994, UST Connecticut had approximately $678 million
of assets under management. A substantial portion of these assets
were from Connecticut domiciled clients, who requested that their
account be transferred from New York.
o In July 1993, the Corporation acquired Capital Trust Company
("Capital Trust"), a Portland, Oregon-based trust and investment
management firm, for 75,831 shares of its common stock valued at $4
million. The acquisition was accounted for as a pooling-of
-interests. At December 31, 1994, Capital Trust had approximately
$1.6 billion of assets under management. As of January 1, 1994,
Capital Trust changed its name to U.S. Trust of the Pacific
Northwest and its consulting practice was contributed to a separate
subsidiary, CTC Consulting Inc.
o In November 1993, U.S. Trust Company of California, N.A., opened a
new full-service branch office in Costa Mesa, California, to serve
the growing affluent region of Orange County. U.S. Trust Company of
California, N.A., including the Costa Mesa branch office, had
approximately $5.9 billion of assets under management at December
31, 1994.
<PAGE>
U.S. TRUST CORPORATION
o In March 1992, the Corporation purchased Delafield, Harvey, Tabell,
Inc. ("Delafield"), a Princeton, New Jersey-based investment
advisory company that also provides broker/dealer services, for
206,307 shares of its common stock valued at $9 million. The
acquisition was accounted for as a purchase. In late 1992, U.S.
Trust Company of New Jersey was granted authority to operate as a
full-service trust company and the investment advisory business of
Delafield was contributed to it. At December 31, 1994, U.S. Trust
Company of New Jersey had approximately $592 million of assets under
management.
o In December 1992, the Corporation acquired Campbell,
Cowperthwait & Co., Inc. ("Campbell"), a New York City-based
investment advisory company, for 106,541 shares of its common stock
valued at $5 million. The acquisition was accounted for as a
pooling-of-interests. At December 31, 1994, Campbell had
approximately $450 million of assets under management.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," ("FAS 107") requires disclosure of
the estimated fair values of the Corporation's financial instruments.
The FAS 107 disclosures and commentary concerning the usefulness of these
disclosures is set forth in "Notes to the Consolidated Financial
Statements No. 18." A discussion of the Corporation's most significant
financial instruments under FAS 107 follows.
The carrying amount of the Corporation's loan portfolio exceeded its
estimated fair value by approximately $30 million at December 31, 1994.
At December 31, 1993, the estimated fair value of the Corporation's loan
portfolio exceeded its carrying amount by approximately $19 million. The
estimated fair value of loans was derived using a discounted cash flow
model which considers average rates earned by the portfolio, current
rates offered to clients and current loan prepayment rates. The decline
in the fair value of the Corporation's loan portfolio is primarily due to
the impact on fixed rate loans of the significant increase in interest
rates since the beginning of 1994. At December 31, 1994, the spread
between the yield on the Corporation's existing fixed rate loans and the
interest rate offered to qualified borrowers for similar loans was
approximately 184 basis points.
The amortized cost of the Corporation's securities portfolio
exceeded its estimated fair value by approximately $6 million at
December 31, 1994. At December 31, 1993, the estimated fair value
exceeded its amortized cost by approximately $17 million. See the
discussion in "Asset/Liability Management - Securities Available for
Sale" in this Financial Review for an analysis of the decrease in the
estimated fair value of the securities portfolio.
<PAGE>
U.S. TRUST CORPORATION
The carrying amount of the Corporation's long term debt exceed the
estimated fair value by approximately $2 million at December 31, 1994 At
December 31, 1993, the estimated fair value exceeded the carrying amount
by approximately $5 million. The decrease in the fair value of long term
debt reflects the increase in the interest rate environment between the
two periods.
The estimated fair value of interest rate swaps was a gain of
approximately $1 million at December 31, 1994 compared to of a loss of
approximately $(4) million at December 31, 1993. The Corporation is a
net fixed rate payor under its interest rate swap agreements. The
increase in the estimated fair value of interest rate swaps reflects the
gradual increase in interest rates in 1994. Since the Corporation is a
fixed rate payer on all of its interest rate swaps, it receives the
benefit of an increase in the LIBOR rate throughout 1994.
Adoption of New Accounting Standards
Disclosure Requirements related to Derivative Financial Instruments
The Corporation has adopted, as of December 31, 1994, Statement of
Financial Accounting Standards No 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," ("FAS
119"). FAS 119 requires new disclosures about derivative financial
instruments and amends certain existing disclosure requirements. Since
FAS 119 is a disclosure requirement only, its adoption did not have any
effect on either the Corporation's financial condition or its results of
operations.
Accounting for Debt and Equity Securities
The Corporation adopted, as of December 31, 1993, Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," ("FAS 115"). FAS 115 requires that investments
in debt securities be classified in one of three categories, each having
a different financial accounting method. The three categories are:
securities held to maturity; trading securities; and securities available
for sale. See "Notes to the Consolidated Financial Statements Nos. 2 (c)
and 5" for additional discussion of FAS 115.
<PAGE>
U.S. TRUST CORPORATION
Accounting for Postemployment Benefits
The Corporation adopted, as of December 31, 1993, Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," ("FAS 112"). FAS 112 requires employers to accrue currently
the cost of benefits, including salary continuation and severance
benefits, provided to former or inactive employees after employment but
before retirement. The adoption of FAS 112 did not have a significant
impact on the results of operations or financial condition of the
Corporation.
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan", ("FAS 114")," issued in May 1993,
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and
Disclosures", ("FAS 118")", an amendment of FAS 114, issued in October
1994, address the accounting by creditors for impairment of certain
loans. FAS 114 requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan
is collateral dependent. FAS 118 amends the disclosure requirements of
FAS 114 to require information about the recorded investment in certain
impaired loans and amends the income recognition criteria in FAS 114.
FAS 114 and FAS 118 are effective for fiscal years beginning after
December 15, 1994. Based upon a preliminary review of the present loan
portfolio, the Corporation does not believe that the adoption of FAS 114
and FAS 118 will have a significant impact on the financial condition or
results of operations of the Corporation.
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Consolidated Statement of Income
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans............................................................................... $ 94,525 $ 77,204 $ 70,088
Securities:
Taxable........................................................................... 74,980 67,868 77,669
Exempt from Federal Income Taxes.................................................. 5,038 7,267 10,842
Federal Funds Sold and Securities Purchased Under Agreements to Resell.............. 9,027 12,213 8,338
Deposits with Banks................................................................. 3,546 5,048 6,274
-------- -------- --------
Total Interest Income............................................................... 187,116 169,600 173,211
-------- -------- --------
INTEREST EXPENSE
Deposits............................................................................ 47,928 37,478 42,450
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase
and Other Borrowings.............................................................. 25,992 10,509 16,356
Long Term Debt...................................................................... 5,084 5,371 5,517
-------- -------- --------
Total Interest Expense.............................................................. 79,004 53,358 64,323
-------- -------- --------
NET INTEREST INCOME................................................................. 108,112 116,242 108,888
Provision for Credit Losses......................................................... 2,000 4,000 6,000
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............................... 106,112 112,242 102,888
-------- -------- --------
FEES AND OTHER INCOME
Fiduciary and Other Fees............................................................ 295,565 264,075 235,824
Securities Gains (Losses), Net...................................................... (42,118) 3,025 2,801
Other............................................................................... 16,748 8,863 6,939
-------- -------- --------
Total Fees and Other Income......................................................... 270,195 275,963 245,564
-------- -------- --------
Total Operating Income Net of Interest Expense and Provision for Credit Losses...... 376,307 388,205 348,452
-------- -------- --------
OPERATING EXPENSES
Salaries............................................................................ 135,415 120,770 104,506
Employee Benefits and Incentive Compensation........................................ 72,068 68,383 60,426
-------- -------- --------
Total Salaries and Benefits......................................................... 207,483 189,153 164,932
Net Occupancy....................................................................... 40,030 40,035 37,420
Equipment........................................................................... 18,371 18,536 18,591
Other............................................................................... 76,051 67,796 68,589
-------- -------- --------
Total Operating Expenses............................................................ 341,935 315,520 289,532
-------- -------- --------
Income From Operations Before Income Taxes and Cumulative Effect
of Accounting Changes............................................................. 34,372 72,685 58,920
Income Taxes........................................................................ 13,405 30,418 22,389
-------- -------- --------
Income From Operations Before Cumulative Effect of Accounting Changes............... 20,967 42,267 36,531
Cumulative Effect of Changes in Accounting for Postretirement Benefits and
Income Taxes (Notes 10 and 17).................................................... - - (7,780)
-------- -------- --------
Net Income.......................................................................... $ 20,967 $ 42,267 $ 28,751
======== ======== ========
Primary Net Income Per Share:
Income From Operations Before Cumulative Effect of Accounting Changes............. $ 2.12 $ 4.26 $ 3.76
Cumulative Effect of Changes in Accounting for Postretirement Benefits
and Income Taxes................................................................ - - (0.80)
-------- -------- --------
Net Income........................................................................ $ 2.12 $ 4.26 $ 2.96
======== ======== ========
Fully Diluted Net Income Per Share:
Income From Operations Before Cumulative Effect of Accounting Changes............. $ 2.09 $ 4.25 $ 3.74
Cumulative Effect of Changes in Accounting for Postretirement Benefits
and Income Taxes................................................................ - - (0.80)
-------- -------- --------
Net Income........................................................................ $ 2.09 $ 4.25 $ 2.94
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Consolidated Statement of Condition
December 31,
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks....................................................................... $ 164,610 $ 179,117
Interest Bearing Deposits with Banks.......................................................... 21,524 61,476
Securities:
Available for Sale, at Estimated Fair Value................................................. 1,033,526 836,532
Held to Maturity (Estimated Fair Value $87,069 in 1993)..................................... - 86,748
Federal Funds Sold and Securities Purchased Under Agreements to Resell........................ 120,000 237,000
Loans......................................................................................... 1,626,898 1,398,723
Less: Allowance for Credit Losses............................................................ 14,699 13,393
---------- ----------
Net Loans..................................................................................... 1,612,199 1,385,330
Premises and Equipment........................................................................ 109,346 109,767
Other Assets.................................................................................. 162,006 290,382
---------- ----------
Total Assets.................................................................................. $3,223,211 $3,186,352
========== ==========
LIABILITIES
Deposits:
Non-Interest Bearing........................................................................ $1,031,538 $1,241,085
Interest Bearing............................................................................ 1,408,833 1,245,529
---------- ----------
Total Deposits................................................................................ 2,440,371 2,486,614
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase
and Other Borrowings........................................................................ 350,515 258,072
Accounts Payable and Accrued Liabilities...................................................... 148,078 147,979
Long Term Debt................................................................................ 60,924 65,100
---------- ----------
Total Liabilities............................................................................. 2,999,888 2,957,765
---------- ----------
Commitments and Contingencies (Notes 1, 13, 14, 15)
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1.00; Authorized 40,000,000 Shares;
Issued 11,581,373 in 1994 and 11,436,293 in 1993............................................. 11,581 11,436
Capital Surplus................................................................................ 72,605 67,898
Retained Earnings.............................................................................. 244,639 242,112
Treasury Stock, at Cost (2,129,448 Shares in 1994 and 2,076,868 Shares in 1993)................ (86,139) (82,857)
Loan to ESOP................................................................................... (16,171) (18,697)
Unrealized Gain (Loss), Net of Taxes, on Securities Available for Sale......................... (3,192) 8,695
---------- ----------
Total Stockholders' Equity..................................................................... 223,323 228,587
---------- ----------
Total Liabilities and Stockholders' Equity..................................................... $3,223,211 $3,186,352
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance, Beginning of Year.......................................................... $ 11,436 $ 56,506 $ 55,864
Issuance of Shares Under Employee Benefit Plans (145,080,
135,080 and 128,497 Shares)....................................................... 145 467 642
Change in Par Value of Common Stock................................................. - (45,537) -
-------- -------- --------
Balance, End of Year................................................................ $ 11,581 $ 11,436 $ 56,506
======== ======== ========
CAPITAL SURPLUS
Balance, Beginning of Year.......................................................... $ 67,898 $ 23,280 $ 23,385
Employee Benefit Plans.............................................................. 4,707 4,011 2,282
Acquisitions........................................................................ - (4,930) (2,387)
Change in Par Value of Common Stock................................................. - 45,537 -
-------- -------- --------
Balance, End of Year................................................................ $ 72,605 $ 67,898 $ 23,280
======== ======== ========
RETAINED EARNINGS
Balance, Beginning of Year.......................................................... $242,112 $216,839 $203,441
Net Income.......................................................................... 20,967 42,267 28,751
Cash Dividends Declared ($2.00, $1.88 and $1.72 Per Share).......................... (18,750) (17,677) (15,860)
Tax Benefit on Dividends Paid to ESOP............................................... 310 683 507
-------- -------- --------
Balance, End of Year................................................................ $244,639 $242,112 $216,839
======== ======== ========
TREASURY STOCK
Balance, Beginning of Year.......................................................... $(82,857) $(78,443) $(77,452)
Purchases (90,000, 157,500 and 292,000 Shares)...................................... (4,573) (8,485) (13,277)
Issuance of Shares Under Employee Benefit Plans, Net (37,420,
33,692 and 27,780) Shares)........................................................ 1,291 1,175 821
Issuance of Shares for Acquisitions (75,831 in 1993 and 312,848 Shares in 1992)..... - 2,896 11,465
-------- -------- --------
Balance, End of Year................................................................ $(86,139) $(82,857) $(78,443)
======== ======== ========
LOAN TO ESOP
Balance, Beginning of Year.......................................................... $(18,697) $(21,029) $(23,181)
Principal Payment by ESOP........................................................... 2,526 2,332 2,152
-------- -------- --------
Balance, End of Year................................................................ $(16,171) $(18,697) $(21,029)
======== ======== ========
UNREALIZED GAIN (LOSS), NET OF TAXES, ON SECURITIES AVAILABLE FOR SALE
Balance, Beginning of Year.......................................................... $ 8,695 $ - $ -
Net Change in Fair Value, After Taxes............................................... (11,887) 8,695 -
-------- -------- --------
Balance, End of Year................................................................ $ (3,192) $ 8,695 $ -
======== ======== ========
Total Stockholders' Equity.......................................................... $223,323 $228,587 $197,153
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Consolidated Statement of Cash Flows
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income..................................................................... $ 20,967 $ 42,267 $ 28,751
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses.................................................... 2,000 4,000 6,000
Depreciation and Amortization of Premises and Equipment and Other Assets....... 15,158 14,896 13,326
Net Amortization of Premium on Securities...................................... 4,637 10,768 9,752
Net Change in Accrued Interest and Accounts Receivable......................... (11,001) (27,066) 2,456
Net Change in Accounts Payable and Other Liabilities........................... 1,397 39,405 25,267
Other, Net..................................................................... 31,951 (2,738) (84)
----------- --------- ---------
Net Cash Provided by Operating Activities...................................... 65,109 81,532 85,468
----------- --------- ---------
Cash Flows From Investing Activities:
Net Change in Interest Bearing Deposits with Banks............................. 39,952 384 33,480
Purchases of Securities:
Available for Sale........................................................... (1,283,359) - -
Held to Maturity............................................................. (402,502) - -
Investment................................................................... - (854,446) (961,837)
Proceeds from Sales of Securities:
Available for Sale........................................................... 578,777 - -
Held to Maturity............................................................. 379,954 - -
Investment................................................................... - 202,080 169,968
Proceeds from Maturities, Calls and Mandatory Redemptions of Securities:
Available for Sale........................................................... 653,972 - -
Held to Maturity............................................................. 46,229 - -
Investment................................................................... - 781,561 607,660
Net Change in Federal Funds Sold and Securities Purchased
Under Agreements to Resell................................................... 117,000 (237,000) 304,525
Net Change in Loans............................................................ (228,175) (138,262) (96,816)
Purchases of Premises and Equipment............................................ (12,626) (19,405) (7,595)
Other, Net..................................................................... 7,492 5,399 (14,995)
----------- --------- ---------
Net Cash Provided by (Used in) Investing Activities............................ (103,286) (259,689) 34,390
----------- --------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits.................................... (209,547) 20,408 183,928
Net Change in Money Market and Other Savings Deposits.......................... 147,674 115,971 58,284
Net Change in Time Deposits.................................................... 15,630 (4,916) 5,066
Net Change in Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings................................ 92,443 32,777 (248,486)
Repurchases/Repayment of Long Term Debt........................................ (4,176) (5,282) (3,822)
Issuance of Common Stock....................................................... 4,686 4,297 3,119
Purchases of Treasury Stock.................................................... (4,573) (8,485) (13,277)
Dividends Paid................................................................. (18,467) (17,205) (15,570)
----------- --------- ---------
Net Cash Provided by (Used in) Financing Activities............................ 23,670 137,565 (30,758)
----------- --------- ---------
Net Change in Cash and Cash Equivalents........................................ (14,507) (40,592) 89,100
Cash and Cash Equivalents at January 1......................................... 179,117 219,709 130,609
----------- --------- ---------
Cash and Cash Equivalents at December 31....................................... $ 164,610 $ 179,117 $ 219,709
=========== ========= =========
Income Taxes Paid.............................................................. $ 27,551 $ 29,678 $ 23,670
Interest Expense Paid.......................................................... 76,711 53,536 65,436
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
1. Pending Disposition and Merger Transaction
On November 18, 1994, U.S. Trust Corporation (the "Corporation") and The
Chase Manhattan Corporation ("Chase") entered into an agreement under
which Chase will acquire the Corporation's institutional custody, mutual
funds servicing and unit trust businesses (the "Processing Business") and
certain back office operations (collectively the "Chase Acquired
Business") for $363.5 million in Chase common stock. The transaction,
which is subject to bank regulatory approvals, U.S. Trust shareholder
approval and a favorable ruling from the Internal Revenue Service
regarding its tax-free status, is expected to be consummated during the
second quarter of 1995.
The transaction will be effected in two virtually simultaneous
steps. First, the Corporation will spin off to its shareholders the
assets not included in the Chase Acquired Business (the "Disposition")
(the asset management, private banking, special fiduciary and corporate
trust businesses and related subsidiaries) in the form of a new holding
company ("New USTC"). The Corporation's shareholders will receive shares
in New USTC on a share-for-share basis. Immediately following the
Disposoition, the Corporation, which will include only the assets and
liabilities of the Chase Acquired Business, will be merged with Chase
(the "Merger").
In conjunction with the Disposition and Merger, Chase will provide
securities processing, custodial, data processing and other services to
New USTC under the five-year term of the servicing agreement at an annual
base fee of $10 million. The servicing agreement may be extended an
additional two to five years beyond its initial term.
Under the agreement, the Corporation will transfer to Chase at the
closing date readily available funds and assets employed by the Chase
Acquired Business equal to the liabilities assumed by Chase. The
Processing Business deposits provided a long-term source of funds to the
Corporation which financed a portion of the Corporation's long- and
medium-term interest earning assets. In anticipation of consummating the
Disposition and Merger and to substantially effect a rebalancing of the
Corporation's overall asset and liability structure, in the fourth
quarter of 1994, the Corporation sold approximately $800 million of U.S.
Government Treasury and Agency securities.
<PAGE>
U.S. TRUST CORPORATION
Estimated Transaction Costs
In conjunction with the announcement of the Disposition and Merger, the
Corporation disclosed that it may incur up to $110 million of
restructuring charges on an after-tax basis in connection with the
Disposition and Merger. The following table lists the estimated
nonrecurring adjustments that satisfy the definition of "exit costs" as
set forth in Emerging Issues Task Force Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
("EITF 94-3") that are directly related to the Disposition and Merger.
The difference between the $110 million and the charges described below
represents charges that do not presently meet the definition of "exit
costs" as defined by EITF 94-3.
<TABLE>
(Thousands) (1)
----------
<C> <S>
Loss on sale of securities held to maturity
and available for sale $ 44,177 (2)
Severance, post-retirement benefits and related costs 21,100
Professional fees 12,000 (3)
Cost of terminating leases for premises 12,000
Cost of terminating computer hardware leases, computer
software licenses, contracts and capitalized software 32,986
Cost of incentive compensation plans that are being
terminated 5,100
Payout for stock options 39,045
--------
166,408
Applicable tax benefits 72,116
--------
Total after-tax charges 94,292
Less after-tax charges recorded in the fourth quarter of 1994 (27,934)
--------
After-tax charges to be recorded in 1995 $ 66,358
========
(1) Except where otherwise noted, these expenses will be accrued or paid in the first
and second quarters of 1995.
(2) The losses on the sale of securities were incurred in the fourth quarter of 1994.
(3) $6.0 million of professional fees were accrued or paid in the fourth quarter of
1994. The balance of the professional fees will be incurred in the first and
second quarters of 1995.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
While the amounts set forth in the table above represent the
Corporation's best estimate of the restructuring costs that will be
incurred, the ultimate level of such charges will not be precisely
determinable until the closing date of the transaction. The cost of
terminating computer hardware leases takes into consideration the
estimated residual value of the equipment when it is returned to the
lessor. Such residual values could be severely impacted and the cost of
terminating the leases increased if the manufacturer releases upgraded
versions of the equipment prior to the lease termination date.
The Corporation continues to review its staffing requirements. This
review will be completed by the closing date of the transaction and may
result in lower staffing levels. Accordingly, the cost of severance and
related benefits may range from the above listed $21.1 million to
approximately $24.0 million.
The payout for stock options is based upon various assumptions,
including: the estimated fair market value of the shares of the
Corporation's common stock, the number of stock options that are
outstanding as of the closing date of the transaction and the average
exercise price of such outstanding options. As a result, the actual
amount of the cash payment will not be determinable until that date.
Other Contingencies and Commitments
In connection with the Disposition and Merger, United States Trust
Company of New York (the "Trust Company") will redeem its outstanding
8 1/2% Capital Notes Due 2001. The Corporation also will satisfy and
discharge its 8% Notes Due 1996. See "Notes to the Consolidated
Financial Statements No. 11" for additional discussion of long term debt.
Under the terms of the Merger Agreement, if the transaction is
terminated due to the Corporation's failure to satisfy certain
conditions, including the failure of the Corporation's stockholders to
approve the Disposition and Merger, the Corporation will pay Chase
$7.5 million as liquidated damages.
2. Accounting Policies
The accounting and reporting policies of the Corporation and its
subsidiaries conform with generally accepted accounting principles and
general practice within the banking industry.
The following is a summary of the significant policies:
(a) Basis of Presentation - The consolidated financial statements
include the accounts of the Corporation and its majority owned
subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
(b) Trust Assets - Property (other than cash deposits) held by the Trust
Company or the Corporation's other subsidiaries in a fiduciary or agency
capacity for customers are not assets of the Corporation and are not
included in the consolidated statement of condition.
<PAGE>
U.S. TRUST CORPORATION
(c) Securities - Effective December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," ("FAS 115"). In
accordance with the provisions of FAS 115, debt securities that the
Corporation has both the positive intent and ability to hold to maturity
are classified as Securities Held to Maturity and carried at historical
cost, adjusted for amortization of premiums and accretion of discounts
("amortized cost"). Gains and losses related to Securities Held to
Maturity are not recorded until realized. Debt securities that may be
sold prior to maturity as part of asset/liability management or in
response to other factors are classified as Securities Available for Sale
and carried at their estimated fair value with unrealized gains and
losses reported in a separate component of stockholders' equity, net of
deferred taxes.
The Corporation has evaluated all of its investments in debt and
equity securities and has classified them as either held to maturity or
available for sale. Premiums and discounts on these securities are
amortized or accreted in accordance with the policy set forth in "Notes
to the Consolidated Financial Statements No. 1(d)." Realized gains and
losses from sales of securities held to maturity and securities available
for sale are determined on a specific identification cost basis.
Prior to the adoption of FAS 115, the Corporation had classified its
investments in debt and equity securities as investment securities, that
were carried at amortized cost. Premiums and discounts on investment
securities were amortized or accreted in accordance with the policy set
forth in "Notes to the Consolidated Financial Statements No.1(d)."
Realized gains and losses from sales of investment securities were
determined on a specific identification cost basis.
See "Notes to the Consolidated Financial Statements No. 5" for
additional discussion.
(d) Interest Bearing Financial Instruments - Interest income/expense is
accrued on interest bearing financial instruments based upon the
contractual terms of the instrument. Premiums and discounts are
amortized or accreted, respectively, on a basis that approximates the
effective yield method.
<PAGE>
U.S. TRUST CORPORATION
(e) Nonperforming Assets - Nonperforming assets consist of non-accrual
financial instruments, restructured assets and real estate acquired in
debt restructurings. Interest accruals are discontinued when principal
or interest is contractually past due ninety days or more. In addition,
interest accruals may be discontinued when principal or interest is
contractually past due less than ninety days if in the opinion of
management the amount due is not likely to be paid in accordance with the
terms of the contractual agreement, even though the financial instruments
are currently performing. Any accrued but unpaid interest previously
recorded on a non-accrual financial instrument is reversed against
interest income. Subsequent cash receipts of interest on non-accrual
financial instruments are applied either to the outstanding principal
balance or recorded as interest income, depending on management's
assessment of the ultimate collectibility of principal. Non-accrual
financial instruments are generally returned to accrual status only when
all delinquent principal and interest payments are brought current and
the collectibility of future principal and interest on a timely basis is
reasonably assured.
If a financial instrument is restructured as a result of the
deterioration of a borrower's financial condition, interest will accrue
at the renegotiated or effective rate, as appropriate.
Real estate acquired in debt restructurings ("ORE") is recorded in
other assets at the lower of the carrying amount of the loan or the ORE's
estimated fair value less estimated costs to sell. After the acquisition
date of the ORE, operating expenses and revenue, additional writedowns,
as appropriate, and gains and losses on the ultimate disposition of ORE
are reported in other expenses.
(f) Allowance for Credit Losses - The allowance for credit losses is
established through charges to income based on management's evaluation of
the adequacy of the allowance in meeting present and possible future
losses in the existing credit portfolio, which includes loans,
commitments to extend credit and standby letters of credit. The adequacy
of the allowance is continually reviewed by management, taking into
consideration current economic conditions, past loss experience and the
risks inherent in the credit portfolio.
(g) Premises and Equipment - Premises and equipment, including leasehold
improvements, are stated at cost less accumulated amortization and
depreciation. Amortization and depreciation expenses are computed on a
straight-line method over the lesser of the term of the lease or the
estimated useful lives of the assets. Maintenance and repairs expenses
are charged to operating expenses as incurred.
<PAGE>
U.S. TRUST CORPORATION
(h) Postretirement Plans - The Corporation has a trusteed,
noncontributory, qualified defined benefit retirement plan that provides
retirement benefits to substantially all employees. The retirement plan
benefit formula is based upon years of service, average compensation over
the final years of service and the social security covered compensation.
The Corporation's funding policy is consistent with the funding
requirements of Federal laws and regulations. Retirement plan assets are
managed by the Trust Company and consist primarily of listed stocks and
commingled debt and international and domestic equity pension trust
funds. The Corporation also maintains an unfunded, non-trusteed,
noncontributory, non-qualified retirement plan for participants whose
retirement benefit payments under the qualified plan are expected to
exceed the limits imposed by Federal tax law.
Effective January 1, 1992, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." See "Notes to the
Consolidated Financial Statements No. 17" for additional discussion.
(i) Income Taxes - The Corporation files a consolidated Federal income
tax return. Applicable taxes of the individual companies are determined
as if they filed a separate return and every subsidiary is charged or
credited for its amount of computed tax.
Deferred income taxes are provided for items that are recognized for
income tax purposes in years other than those in which they are
recognized for financial reporting purposes.
Effective January 1, 1992, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
See "Notes to the Consolidated Financial Statements No. 10" for
additional discussion.
(j) Derivative Financial Instruments - The Corporation accounts for its
interest rate swap agreements ("Swaps") and forward rate agreements
("FRAs") as hedges. The differential to be paid or received over the
life of the Swap is recognized on an accrual basis as an adjustment to
interest expense. FRAs are accounted for by deferring the cash
received/paid on settlement date and amortizing the cash settlement as an
adjustment to interest expense until the maturity date of the contract.
(k) Net Income Per Share - Primary net income per share is computed by
dividing net income by the total weighted average common and common
equivalent shares outstanding. Common equivalent shares include the
dilutive effect of outstanding stock options and the assumed issuance of
deferred stock awards earned from incentive plans. Total common and
common equivalent shares outstanding amounted to 10,019,592 in 1994,
9,968,033 in 1993 and 9,697,987 in 1992.
Fully diluted net income per share is computed under the assumption
that all contingent increases in common stock have occurred to the extent
that they have a dilutive effect on net income per share. Total common
shares outstanding on a fully diluted basis amounted to 10,198,301 in
1994, 9,994,591 in 1993 and 9,768,499 in 1992.
<PAGE>
U.S. TRUST CORPORATION
(l) Cash and Cash Equivalents - For purposes of the Consolidated
Statement of Cash Flows, the Corporation considers the Consolidated
Statement of Condition caption "Cash and Due from Banks" as cash and cash
equivalents. For purposes of the U.S. Trust Corporation (Parent Company
Only) (See "Notes to the Consolidated Financial Statements No. 20")
Statement of Cash Flows, the Corporation considers the Statement of
Condition caption "Total Due From Banks" as cash and cash equivalents.
(m) Reclassifications - Prior periods have been reclassified to conform
with the current presentation.
3. Acquisitions
On July 7, 1993, the Corporation exchanged 75,831 shares of its common
stock, valued at approximately $4.0 million, for 100% of the shares of
Capital Trust Company ("Capital Trust"), a Portland, Oregon-based trust
and investment management and consulting company. On December 1, 1992,
the Corporation exchanged 106,541 shares of its common stock, valued at
approximately $5.0 million, for 100% of the shares of Campbell,
Cowperthwait & Co., Inc. ("Campbell"), a New York City-based investment
advisory company. These acquisitions were accounted for as poolings-of
- -interests. Neither acquisition had a significant effect on the
Corporation's consolidated financial statements. Accordingly, the
results of operations for Capital Trust and Campbell have been recorded
as of their respective dates of acquisition and prior period financial
statements were not restated.
On March 31, 1992, the Corporation purchased 100% of the stock of
Delafield, Harvey, Tabell Inc., an investment advisory company located in
Princeton, New Jersey, for 206,307 shares of the Corporation's common
stock valued at $9.0 million. The acquisition was accounted for as a
purchase. Substantially all of the purchase price was allocated to the
value of investment management contracts that are being amortized on a
straight-line basis over their estimated ten-year life. The acquisition
did not have a material impact on the Corporation's 1992 operating
results.
4. Cash and Due from Banks
The average non-interest earning balances held at the Federal Reserve
Bank for the years ended December 31, 1994 and 1993 were $65 million and
$73 million, respectively. These amounts represent reserve requirements
which must be maintained on deposits. There are no other restrictions on
cash and due from banks.
5. Securities
The Corporation adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
("FAS 115") as of December 31, 1993. Prior to adopting FAS 115, all of
the Corporation's investments in debt and equity securities had been
classified as investment securities that were recorded at their amortized
cost.
<PAGE>
U.S. TRUST CORPORATION
A comparison of the amortized cost, estimated fair value and gross
unrealized gains and losses as of December 31, 1994 and 1993,
respectively, for securities available for sale and securities held to
maturity follows.
<TABLE>
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
(In Thousands) Cost Value Gains Losses
- -------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Securities available for sale:
December 31, 1994:
U.S. Government and Federal Agency obligations:
U.S. Treasury obligations $ 606,999 $ 601,120 $ 17 $ 5,896
Government National Mortgage Association obligations (Ginnie Mae) (1) 105,810 107,143 2,666 1,333
U.S. Government Sponsored Agencies and Corporations (2) 134,612 133,119 73 1,566
---------- ---------- ------- -------
847,421 841,382 2,756 8,795
---------- ---------- ------- -------
States and Municipal obligations (3) 75,086 75,879 1,437 644
Collateralized mortgage obligations (4) 58,842 58,580 69 331
All other 57,954 57,685 - 269
---------- ---------- ------- -------
Total $1,039,303 $1,033,526 $ 4,262 $10,039
========== ========== ======= =======
December 31, 1993:
U.S. Government and Federal Agency obligations:
U.S. Treasury obligations $ 210,265 $ 212,312 $ 2,100 $ 53
Government National Mortgage Association obligations (Ginnie Mae) (1) 153,239 162,379 9,401 261
U.S. Government Sponsored Agencies and Corporations (2) 189,755 190,467 784 72
---------- ---------- ------- -------
553,259 565,158 12,285 386
---------- ---------- ------- -------
States and Municipal obligations (3) 85,341 89,748 4,417 10
Collateralized mortgage obligations (4) 115,516 115,728 447 235
All other 65,907 65,898 - 9
---------- ---------- ------- -------
Total $ 820,023 $ 836,532 $17,149 $ 640
========== ========== ======= =======
Securities held to maturity:
December 31, 1993:
U.S. Government and Federal Agency obligations:
Government National Mortgage Association
obligations (Ginnie Mae) (1) $ 73,300 $ 73,591 $ 291 $ -
U.S. Government Sponsored Agencies and Corporations (2) 13,448 13,478 32 2
---------- ---------- ------- ------
$ 86,748 $ 87,069 $ 323 $ 2
========== ========== ======= ======
<PAGE>
U.S. TRUST CORPORATION
(1) Backed by the full faith and credit of the U.S. Government.
(2) Securities available for sale are comprised of Federal National Mortgage Association (Fannie Mae), Federal Home Loan
Mortgage Corporation (Freddie Mac) and Small Business Administration (SBA) obligations. Securities held to maturity
are comprised of SBA obligations.
(3) Comprised mainly of highly rated investment grade general obligation and revenue bonds.
(4) Collateralized by either Ginnie Mae, Fannie Mae or Freddie Mac obligations.
</TABLE>
The amortized cost and estimated fair value of securities available for
sale at December 31, 1994, by the earlier of contractual maturity or call
date, follows.
<TABLE>
December 31, 1994
------------------------------
Estimated
Amortized Fair
(In Thousands) Cost Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 584,786 $ 581,388
Due after one year through two years 97,538 95,031
Due after two years through five years 37,716 38,381
Due after five years through ten years 1,395 1,358
Due after ten years 14,764 14,687
---------- ----------
Sub-Total 736,199 730,845
Collateralized mortgage obligations, mortgage-backed securities
and other asset-backed securities (1)(2)(3) 299,265 298,842
---------- ----------
Sub-Total 1,035,464 1,029,687
Federal Reserve Bank and Federal Home Loan Bank stock 3,839 3,839
---------- ----------
Total $1,039,303 $1,033,526
========== ==========
(1) In excess of 93% of these securities are collateralized mortgage obligations and mortgage-backed securities.
(2) At December 31, 1994, the Corporation's available for sale collateralized mortgage obligations, mortgage-
backed securities and other asset-backed securities had a weighted-average life of 5.5 years reflecting
anticipated future prepayments based on a consensus of dealers in the market.
(3) Expected maturities for collateralized mortgage obligations, mortgage-backed securities and other asset-
backed securities may differ from contractual maturities because borrowers have the right to prepay obligations
with or without prepayment penalties.
</TABLE>
The components of securities gains (losses), net for the years ended
December 31, 1994, 1993 and 1992 follows.
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Years Ended December 31,
------------------------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains from sales $ 2,116 $3,347 $2,871
Gross realized (losses) from sales (44,263) (370) (206)
Net gains on maturities, calls and mandatory redemptions 29 48 136
-------- ------ ------
Securities gains (losses), net $(42,118) $3,025 $2,801
======== ====== ======
</TABLE>
In December 1994, the Corporation tranferred $28,884,000 (carrying value)
of securities classified as held to maturity to the securities available
for sale category. As a result of this transfer, an unrealized loss of
$503,000 (before-tax) was recorded in "Stockholders' Equity - Unrealized
Gain (Loss), Net of Taxes, on Securities Available for Sale." See "Notes
to the Consolidated Financial Statements No. 1" for additional discussion
regarding the Corporation's disposition of its portfolio of held to
maturity securities.
In December 1993, the Corporation sold $351,460,000 of securities,
which created an account receivable from various brokers of $152,358,000.
The entire amount of this receivable was collected in January 1994.
At December 31, 1994 and 1993, securities in the amount of
$303,304,000 and $285,543,000, respectively, were pledged to secure
public deposits, as collateral for borrowings, to qualify for fiduciary
powers and for other purposes.
6. Loans
The following is an analysis of the composition of the loan portfolio.
<TABLE>
December 31,
----------------------------------------------------------
(In Thousands) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking:
Residential real estate mortgages $ 851,074 $ 699,193 $ 612,142 $ 449,270 $ 353,663
Other 420,442 416,922 319,233 300,859 308 071
---------- ---------- ---------- ---------- ----------
Total private banking loans 1,271,516 1,116,115 931,375 750,129 661,734
---------- ---------- ---------- ---------- ----------
Short-term trust credit facilities* 215,105 211,741 259,729 321,270 341,511
Loans to financial institutions for
purchasing and carrying securities 126,640 57,505 52,652 49,982 20,967
All other 13,637 13,362 16,705 42,264 35,952
---------- ---------- ---------- ---------- ----------
Total $1,626,898 $1,398,723 $1,260,461 $1,163,645 $1,060,164
========== ========== ========== ========== ==========
<PAGE>
U.S. TRUST CORPORATION
* The Trust Company provides short-term credit facilities to certain of its trust customers in anticipation of receiving
interest and dividends due from investments under administration and custody agreements. At December 31, 1994, more
than 75% of the Trust Company's short-term trust credit facilities related to clients of the Processing Business. The
Trust Company has never experienced a credit loss as a result of these arrangements. Approximately 83% of the
December 31, 1994 short-term trust credit facilities were repaid on the next business day.
</TABLE>
The aggregate outstanding principal amounts of non-accrual and
restructured loans follow:
<TABLE>
December 31,
------------------------------------------------------
(In Thousands) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking non-accrual loans $5,592 $4,929 $7,498 $ 9,194 $ 5,054
All other non-accrual and restructured loans 779 1,076 1,103 10,304 11,058
------ ------ ------ ------- -------
Total $6,371 $6,005 $8,601 $19,498 $16,112
====== ====== ====== ======= =======
</TABLE>
The effect of these loans on interest income is presented below:
<TABLE>
Years Ended December 31,
----------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income which would have been earned under original terms $571 $689 $648
Interest income recognized during year 245 264 276
---- ---- ----
Reduction in interest income $326 $425 $372
==== ==== ====
</TABLE>
An analysis of real estate acquired in debt restructurings follows:
<TABLE>
December 31,
-------------------------------------------------------
(In Thousands) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking $ 2,984 $ 3,101 $ 3,291 $ 840 $ 240
All other 9,378 8,441 10,386 8,375 9,108
------- ------- ------- ------ ------
Total $12,362 $11,542 $13,677 $9,215 $9,348
======= ======= ======= ====== ======
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
7. Allowance for Credit Losses
An analysis of the allowance for credit losses follows:
<TABLE>
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $13,393 $11,676 $ 8,661
------- ------- -------
Charge-offs (1,499) (4,100) (3,566)
Recoveries 805 1,817 581
------- ------- -------
Net charge-offs (694) (2,283) (2,985)
Provision charged to income 2,000 4,000 6,000
------- ------- -------
Balance, December 31 $14,699 $13,393 $11,676
======= ======= =======
</TABLE>
8. Premises and Equipment
An analysis of premises and equipment follows:
<TABLE>
December 31,
--------------------
(In Thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,000 $ 1,000
Building 12,144 12,140
Leasehold improvements 97,463 93,115
Furniture and equipment 65,355 62,776
-------- --------
175,962 169,031
Less accumulated amortization and depreciation 66,616 59,264
-------- --------
Total $109,346 $109,767
======== ========
Amortization and depreciation expense $ 13,056 $ 11,952
======== ========
</TABLE>
Amortization and depreciation expense amounted to $10,669,000 for 1992.
9. Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Other Borrowings
An analysis of borrowings follows:
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased:
Year-end balance $ 19,535 $ 31,535 $ 70,945
Daily average balance 313,765 151,005 253,446
Maximum end-of-month balance 941,860 470,325 812,810
Weighted average interest rate during year 4.50% 3.12% 3.78%
Weighted average interest rate at year-end 5.96 3.00 2.04
Securities sold under agreements to repurchase:
Year-end balance $204,280 $189,679 $134,473
Daily average balance 197,416 187,868 192,733
Maximum end-of-month balance 368,750 305,249 378,146
Weighted average interest rate during year 3.87% 2.82% 3.26%
Weighted average interest rate at year-end 5.57 2.86 2.91
Federal funds purchased term and other borrowings:
Year-end balance $126,700 $ 36,858 $ 19,877
Daily average balance 84,813 17,326 20,327
Maximum end-of-month balance 311,511 37,716 101,138
Weighted average interest rate during year 5.01% 2.88% 2.45%
Weighted average interest rate at year-end 5.70 2.59 3.97
</TABLE>
Federal funds purchased and securities sold under agreements to
repurchase generally are overnight borrowing transactions.
10. Income Taxes
The Corporation adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," ("FAS 109") retroactive to January 1,
1992. FAS 109 requires, among other things, that an asset and liability
approach be applied to accounting for income taxes and that the
recognition of deferred tax assets be evaluated using a "more likely than
not" realizability criterion. As a result of adopting FAS 109, 1992 net
income was increased by $4.6 million ($.47 per share).
The components of the provision for income taxes that are
attributable to income from operations are as follows:
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Years Ended December 31,
-------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $11,347 $16,280 $10,543
State and local 2,897 12,318 10,957
------- ------- -------
Total current income taxes 14,244 28,598 21,500
------- ------- -------
Deferred:
Federal (687) 2,180 2,205
State and local (152) (360) (1,316)
------- ------- -------
Total deferred income taxes (839) 1,820 889
------- ------- -------
Total $13,405 $30,418 $22,389
======= ======= =======
</TABLE>
Deferred income taxes that are attributable to income from operations
resulted from:
<TABLE>
Years Ended December 31,
-------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred employee benefits $(980) $(3,878) $(3,248)
Trust and fiduciary activities (812) (337) (499)
Provision for credit losses (575) (706) (1,367)
Other real estate (17) 1,554 107
Depreciation expense 745 2,999 1,593
Leasing transactions 398 11 (17)
Alternative minimum tax - 2,563 3,718
Federal tax rate change - (403) -
Other, net 402 17 602
----- ------- -------
Total $(839) $ 1,820 $ 889
===== ======= =======
</TABLE>
A reconciliation of the Federal statutory income tax rate with the
Corporation's effective income tax rate attributable to income from
operations follows:
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1994 1994 1993 1993 1992 1992
- ------------------------------------------------------------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. Federal income tax rate $12,030 35.0 % $25,440 35.0 % $20,033 34.0 %
Increase (decrease) in effective rate resulting from:
Tax-exempt interest income (1,668) (4.9) (2,466) (3.4) (3,562) (6.0)
State and local taxes, net of Federal
income tax benefit 1,784 5.2 7,773 10.7 6,363 10.8
Miscellaneous items 1,259 3.7 (329) (0.5) (445) (0.8)
------- ---- ------- ---- ------- ----
$13,405 39.0 % $30,418 41.8 % $22,389 38.0 %
======= ==== ======= ==== ======= ====
</TABLE>
The components of income tax expense for the years ended December 31,
1994, 1993 and 1992 that are applicable to operations, cumulative effect
of changes in accounting principles and stockholders' equity follows:
<TABLE>
Years Ended December 31,
-------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes applicable to:
Operations $ 13,405 $30,418 $ 22,389
Cumulative effect of changes in accounting principles - Adoption of:
FAS 106 - - (10,579)
FAS 109 - - (4,609)
Stockholders' equity:
Change in fair value of securities available for sale (10,399) 7,814 -
Tax benefit on dividends paid to the ESOP on unallocated shares (310) (683) (507)
-------- ------- --------
Total $ 2,696 $37,549 $ 6,694
======== ======= ========
</TABLE>
The components of the net deferred tax liability (asset) as of
December 31, 1994 and 1993 follows:
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
December 31,
-----------------------
(In Thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets):
Deferred employee benefits $(22,137) $(21,212)
Trust and fiduciary activities (10,025) (9,239)
Allowance for credit losses (6,746) (6,186)
Leasing transactions (3,745) (3,400)
Other real estate (1,190) (1,232)
Other (425) (1,427)
-------- --------
(44,268) (42,696)
-------- --------
Deferred tax liabilities:
Premises and equipment 18,798 18,012
Other 442 494
-------- --------
19,240 18,506
-------- --------
Net deferred tax (asset) $(25,028) $(24,190)
======== ========
</TABLE>
The income tax effect of securities gains (losses), net was
$(19,898,000), $1,433,000 and $1,304,000 in 1994, 1993 and 1992,
respectively.
11. Long Term Debt
The composition of long term debt follows.
<TABLE>
December 31,
-----------------------
(In Thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8 1/2% Capital Notes due 2001 $10,803 $12,453
8% Notes due 1996 29,950 29,950
8.35% Senior Unsecured ESOP Notes due 1999 16,171 18,697
Federal Home Loan Bank Borrowings 4,000 4,000
------- -------
Total $60,924 $65,100
======= =======
</TABLE>
The capital notes were issued by the Trust Company, and are subordinated
to deposits and certain other liabilities. The capital notes require
annual sinking fund payments of $1,650,000; and are redeemable in whole
or in part, at the option of the Trust Company, subject to the approval
of any bank supervisory authority having jurisdiction, at an initial
redemption price of 104.25% of the principal amount, decreasing to 100%
of the principal amount in 1996 and thereafter, together with accrued
interest.
<PAGE>
U.S. TRUST CORPORATION
The 8% notes are unsecured and unsubordinated obligations of the
Corporation. They are not redeemable or callable by, or at the option
of, the Corporation at any time.
The 8.35% Senior Unsecured ESOP Notes due 1999 ("ESOP Notes") are
obligations of the Corporation that require annual payments of principal
and interest. The Corporation loaned the proceeds from the ESOP Notes to
the trust established to administer the 401(k) Plan and ESOP of United
States Trust Company of New York and Affiliated Companies ("401(k) Plan")
on the same terms. The 401(k) Plan used the proceeds to purchase 690,498
shares of common stock from the Corporation's treasury stock holdings for
an Employee Stock Ownership Plan ("the ESOP"). (See "Notes to the
Consolidated Financial Statements No. 17.") The ESOP Notes call for
principal repayments amounting to $2,737,000, $2,966,000, $3,213,000,
$3,482,000 and $3,773,000, payable annually on February 1, 1995, through
February 1, 1999.
The Federal Home Loan Bank ("FHLB") borrowings represent four
separate drawings of $1 million each, by U.S Trust Company of Texas,
N.A., with maturity dates between 1995 and 1999. The FHLB borrowings
bear interest ranging between 5.56% and 6.43%. Each FHLB borrowing is
collateralized by the pledge of qualifying assets.
12. Stockholders' Equity
At the Annual Meeting of Shareholders on April 27, 1993, the shareholders
approved an amendment to the Certificate of Incorporation which reduced
the par value of the Corporation's common stock from $5.00 per share to
$1.00 per share. Effective as of that date $45,537,000 was transferred
from the Common Stock account to the Capital Surplus account. In
addition, the shareholders approved an increase in the Corporation's
authorized common shares to 40 million from 20 million. Neither of these
actions had any effect on the total amount of Stockholders' Equity.
In April 1992, the Corporation's Board of Directors approved a 1.0
million common stock buyback program. This was in addition to the 2.7
million common stock buyback program that had been previously approved.
Through December 31, 1994, 3,031,787 shares of common stock have been
repurchased in the open market at an average cost of $39.87 per share.
Of the total common shares repurchased, 90,000 common shares were
purchased in 1994 at a total cost of $4.6 million.
The Corporation is authorized to issue up to 5.0 million, $1.00 par
value, preferred shares as of December 31, 1993. No preferred shares
have been issued.
<PAGE>
U.S. TRUST CORPORATION
The Corporation's banking subsidiaries are subject to limitations on
the amount of dividends they can pay to the Corporation without prior
approval of the bank regulatory authorities. Under this limitation, the
banking subsidiaries can declare, in aggregate, dividends in 1995 without
approval of the regulatory authorities of approximately $33.9 million,
plus an additional amount equal to the banking subsidiaries' net income
for 1995 as of the dividend declaration date. In addition, in 1992 the
Trust Company applied for, and was granted permission by the Federal
Reserve Bank of New York, authority to pay a special dividend to the
Corporation of up to $50.0 million. Under this special authority, the
Trust Company has paid dividends to the Corporation of $5.0 million in
1994, $5.0 million in 1993 and $25.0 million in 1992.
13. Contingencies
There are various pending and threatened actions and claims against the
Corporation and its subsidiaries in which the Corporation has denied
liability and which it will vigorously contest. Management, after
consultation with counsel is of the opinion that the ultimate resolution
of such matters is unlikely to have any future material effect on the
Corporation's financial position or results of operations.
14. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Corporation enters into various
transactions involving off-balance sheet financial instruments to meet
the needs of its customers and to reduce its own exposure to fluctuations
in interest rates. These transactions are subject to varying degrees of
market and credit risk. As compensation for the risks assumed, these
instruments generate interest or fee revenue or expense. The controls
used to monitor the credit and market risks of off-balance sheet
financial instruments are consistent with those associated with the
Corporation's on-balance sheet activities.
Credit-Related Financial Instruments
Credit-related financial instruments include firm commitments to extend
credit ("commitments"), standby letters of credit ("standbys") and
indemnifications in connection with securities lending activities
("securities lending"). The credit risk associated with these
instruments varies depending on the creditworthiness of the customer and
the value of the collateral held, if any. Collateral requirements vary
by type of instrument. The contractual amounts of these instruments
represent the amounts at risk should the contract be fully drawn upon and
the client default, with all collateral being worthless.
<PAGE>
U.S. TRUST CORPORATION
Commitments are legally binding agreements to lend to a customer
that generally have fixed expiration dates or other termination clauses,
may require payment of a fee and are not secured by collateral until
funds are advanced. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis prior to approving a commitment
or advancing funds under a commitment and determining the related
collateral requirement. Collateral held includes marketable securities,
real estate mortgages or other assets. The majority of the Corporation's
commitments are related to mortgage lending to private banking clients
and backup lines or credit for various financial institutions. The
mortgage lending commitments are generally expected to be utilized, while
the backup lines of credit typically expire unused. Commitments totaled
$121.4 million and $129.6 million at December 31, 1994 and 1993,
respectively.
Standbys are conditional commitments issued by the Corporation to
guarantee the performance of a customer to a third party. Those
guaranties are issued to satisfy margin requirements incurred by
investment banking and broker/dealer companies for their activities
conducted on organized exchanges, to guarantee performance under lease
and other agreements by professional business corporations and for other
purposes. The credit risk involved in issuing standbys is essentially
the same as that involved in extending loans. Standbys outstanding at
December 31, 1994 and 1993 amounted to $79.1 million and $113.5 million,
respectively. Collateral is obtained based on management's credit
assessment of the counterparty. At December 31, 1994, $58.8 million of
the standbys outstanding were partially or fully secured by collateral
consisting of cash, marketable equity securities, marketable debt
securities (including corporate and U.S. Treasury debt securities) and
other assets, compared with $92.7 million at December 31, 1993.
Approximately 56% of the standbys outstanding at December 31, 1994 expire
within one year compared with approximately 54% at December 31, 1993.
The Trust Company has established a program through which
participating trust customers may lend their securities to
counterparties. In certain cases, the Trust Company indemnifies the
trust customer for losses if the counterparty defaults and the collateral
received is insufficient to compensate for the loss of the loaned
securities. Collateral value is monitored daily and additional
collateral is obtained when appropriate. Securities lending obligations
subject to the Trust Company's indemnification amounted to
$2,233.2 million at December 31, 1994 and $1,231.1 million at
December 31, 1993. Collateral, principally cash, held against these
security lending obligations totaled $2,270.0 million and
$1,253.2 million, respectively, at December 31, 1994 and 1993,
respectively.
<PAGE>
U.S. TRUST CORPORATION
Derivative Financial Instruments
From time to time, as part of its overall asset and liability management
process, the Corporation utilizes derivative financial instruments, such
as Swaps and FRAs as hedges. Swaps are used to hedge the net yield
earned on pools of fixed rate residential real estate mortgage loans
originated in the year of the Swaps' inception. FRAs are used to hedge
either the rate earned from the investment of a portion of the
Corporation's non-interest bearing deposit flows in pools of short term
investments, such as U.S. Treasury Bills and short term interest bearing
deposits with banks, or the rate earned on other anticipated short term
investments that are funded by other sources of funds.
The market values associated with these instruments can vary
depending on movements in interest rates. The measurement of the market
risks associated with these instruments is meaningful only when all
related and offsetting transactions are identified. The notional or
contractual amounts of these instruments are indications of the volume of
transactions and do not represent amounts at risk. The amounts at risk
upon default are generally limited to the unrealized market valuation
gains of the instruments and will vary based on changes in interest
rates. The risk of default depends on the creditworthiness of the
counterparty to the instrument. The Corporation evaluates the
creditworthiness of its counterparties as part of its normal credit
review procedures.
At December 31, 1994 and 1993, the Corporation was a counterparty to
Swaps with a total notional principal amount of $86 million and
$103 million, respectively. Swaps involve the exchange of fixed and
floating rate interest payment obligations computed on notional principal
amounts. The Corporation enters into Swaps with counterparties as a
principal. Outstanding Swaps had a weighted average maturity of
approximately 13 months at December 31, 1994 and 19 months at
December 31, 1993.
FRAs involve the exchange of net interest differentials calculated
as the difference between a contractual interest rate and a market
interest rate determined on the contract's settlement date. At
ecember 31, 1994, the Corporation had no FRAs outstanding, compared with
a total notional principal amount of $150 million outstanding at
December 31, 1993. Outstanding FRAs at December 31, 1993 had a weighted
average maturity of approximately 90 days.
15. Rental Commitments on Premises and Equipment
Substantially all of the Corporation's operations are conducted from
premises that are leased. The initial lease periods expire between 1995
and 2016. The lease for the Corporation's headquarters building expires
in 2014 and is renewable at the Corporation's option for two successive
terms of ten years each at the then current market rate. In addition,
the Corporation leases data processing equipment under leases with
expiration dates ranging from two to seven years. Management expects
that in the normal course of business most leases will be renewed or
replaced by other leases.
<PAGE>
U.S. TRUST CORPORATION
Rent expense on operating leases for the years 1994, 1993 and 1992,
net of sublease rentals, was $35,326,000, $35,799,000 and $35,021,000,
respectively. Operating lease rent expense includes adjustments
amounting to $2,676,000 in 1994, $2,584,000 in 1993 and $2,222,000 in
1992 for increases in real estate taxes, labor costs and certain
operating expenses of the landlords, net of similar adjustments applied
on sublease rentals.
A schedule of future minimum rental payments that have noncancelable
lease terms in excess of one year as of December 31, 1994 follows.
Rental commitments related ot the Chase Acquired Business have been
included in the schedule and amounted to approximately $50 million of the
total minimum payments required.
<TABLE>
Minimum
(In Thousands) Rentals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Year Ending December 31:
1995 $ 28,822
1996 29,285
1997 27,929
1998 28,077
1999 28,154
Later years 262,225
--------
Total minimum payments required $404,492
========
</TABLE>
The foregoing minimum rental amounts include, and are subject to
escalations based upon increases in certain operating expenses incurred
by the lessors.
16. Incentive Compensation Plans
The Corporation sponsors a 401(k) Plan and ESOP covering all employees
who satisfy a one year service requirement. The 401(k) Plan provides
that, depending upon the Corporation satisfying certain profitability
criteria and other factors, eligible employees receive annual awards
calculated as a percentage of such employees' compensation. Awards to
senior officers are calculated under the provisions of the Annual
Incentive Plan ("AIP"), while awards to non-senior officers and other
employees are governed by the terms of the Incentive Award Plan ("IAP").
Awards under either the AIP or IAP plan are comprised of an ESOP award,
which is mandatorily contributed to the 401(k) Plan, and of an elective
award, which may be taken in cash or, subject to certain limitations,
deferred and contributed to the 401(k) Plan. Total incentive awards were
$26.8 million, $26.0 million and $23.8 million in 1994, 1993 and 1992,
respectively.
<PAGE>
U.S. TRUST CORPORATION
The ESOP had originally purchased 690,498 shares of the
Corporation's common stock with borrowed funds (See "Notes to the
Consolidated Financial Statements No. 11"). Debt service requirements
are satisfied through the dividends received by the ESOP and the ESOP
award to the extent required. Any remaining ESOP award is invested in
the U.S. Trust Corporation Stock Fund of the 401(k) Plan. Unallocated
ESOP shares are as collateral for its debt. As the debt is repaid,
shares are released from collateral and allocated to active employees.
All dividends declared on allocated and unallocated ESOP shares are
recorded as deductions from retained earnings. The related tax benefits
for dividends paid on allocated shares are recorded in the Consolidated
Statement of Income as a reduction of Income Tax Expense. The tax
benefits for dividends paid on unallocated shares are recorded in the
Consolidated Statement of Condition as an increase in Retained Earnings.
The external borrowings related to the ESOP are included in the
Consolidated Statement of Condition under the caption "Long Term Debt."
The original cost of the ESOP shares has been recorded in the
Consolidated Statement of Condition caption Stockholders' Equity - Loan
to ESOP. As annual debt service payments are made, the balances in Long
Term Debt and Loan to ESOP are reduced. For earnings per share purposes,
shares held by the ESOP, both allocated and unallocated, are considered
to be outstanding.
At December 31, 1994, 414,199 shares of stock held by the ESOP have
been allocated to participant accounts, including 69,075 shares that have
been allocated based upon the anticipated February 1, 1995 debt service
payment. Unallocated shares at December 31, 1994 amounted to 276,299.
The Corporation has no obligation to repurchase any ESOP shares from
either the ESOP or any participants in the 401(k) Plan.
The Corporation's 1989 Stock Compensation Plan ("the 1989 Plan")
governs the granting of stock option, restricted common stock and Long
- -Term Performance ("LTP") awards to eligible employees. The 1989 Plan,
as amended in April 1992, authorizes the issuance of a maximum of 1.3
million common shares plus common shares previously authorized but not
utilized under certain predecessor stock compensation plans. At
December 31, 1994, the Corporation had 343,761 shares of common stock
available for issuance as restricted stock awards, incentive stock
options, non-qualified stock options and performance share units.
Awards of restricted common stock to key executives are contingent
upon their continued employment, generally between two to seven years.
The fair value of the shares at the date of grant is recorded as
compensation expense over the restriction period. At December 31, 1994,
a total of 90,296 shares with an unamortized cost of $1,844,000 were
outstanding with restrictions. During 1994, 34,550 shares with an
aggregate fair value at their date of grant of approximately $1,771,000
were awarded. The expense recognized for the plan amounted to $1,521,000
in 1994, $1,465,000 in 1993 and $1,240,000 in 1992.
Under the 1989 Plan, the Corporation may award either incentive
stock options or non-qualified stock options. The options expire ten
years from the date of grant and their exercise price is not less than
the fair value of a common share on the date of grant.
<PAGE>
U.S. TRUST CORPORATION
In 1989, the shareholders of the Corporation approved the Stock
Option Plan for Non-Employee Directors of U.S. Trust Corporation ("the
Directors Plan"). The Directors Plan provides for the granting of non
qualified options to non-employee directors, as defined in the Directors
Plan. The Directors Plan authorizes the issuance of a maximum of 125,000
shares of common stock. The options expire ten years from the date of
grant and their exercise price is not less than the fair value of a
common share on the date of grant.
The following is a combined summary of option transactions which
occurred under the 1989 Plan and the Directors Plan during 1994, 1993 and
1992.
<TABLE>
Shares
Under Option Price
Option Per Share
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1. 1992 1,188,133 $16.72 - 42.13
Granted 210,000 44.75 - 49.63
Exercised (128,497) 16.72 - 38.75
Cancelled (17,238) 30.75 - 44.75
--------- --------------
Balance, December 31, 1992 1,252,398 16.72 - 49.63
Granted 179,200 53.88
Exercised (135,080) 16.72 - 44.75
Cancelled (9,345) 28.00 - 53.88
--------- --------------
Balance, December 31, 1993 1,287,173 19.00 - 53.88
Granted 205,000 51.25 - 51.60
Exercised (145,080) 19.00 - 53.88
Cancelled (27,084) 19.00 - 53.88
--------- --------------
Balance, December 31, 1994 1,320,009 $27.75 - 53.88
========= ==============
</TABLE>
Options exercisable at December 31, 1994 and 1993 amounted to 812,305
shares and 750,121 shares, respectively.
LTP awards are calculated as a percentage of such officers'
compensation to the extent that certain goals defined in the plan are
met. LTP awards are based upon three-year cycles. Awards are charged to
expense over the three-year cycle subject to the Corporation meeting the
goals specified for the award cycle. The Corporation provided for awards
of $5,097,000, $4,222,000 and $3,691,000 for the LTP in the years 1994,
1993 and 1992.
17. Health Care and Life Insurance Benefits
The Corporation provides certain health care and life insurance benefits
for all employees, certain qualifying retired employees and their
dependents.
<PAGE>
U.S. TRUST CORPORATION
The Corporation adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," ("FAS 106") retroactive to January 1, 1992, using the
immediate recognition method. FAS 106 requires that employers accrue,
during the years that the employee renders service, the expected cost of
providing health care and life insurance and other benefits to an
employee upon retirement. Under the immediate recognition transition
method, the accumulated postretirement benefit obligation of
$23.0 million, net of deferred taxes of $10.6 million, was charged
against 1992 net income. In addition, employee benefits expense was
increased by $2.2 million ($1.4 million after taxes) reflecting the
ongoing impact of FAS 106.
Effective January 1, 1993, the Corporation's postretirement health
care plans were amended to change the health care insurance cost-sharing
formula for retirees and their qualified dependents. Under the revised
cost-sharing formula, the Corporation will not absorb any insurance
premium cost increases after 1999. The impact of this amendment
($8.5 million reduction in the accumulated postretirement benefit
obligation) is being amortized over the estimated remaining service lives
of the affected employee group of 11 years, commencing in 1993.
The following tables detail the components of expense for the
Corporation's unfunded postretirement health care and life insurance
plans and the composition of the accumulated postretirement benefit
obligation.
<TABLE>
Years Ended December 31,
-----------------------------------------------------------------------------------
1994 1993 1992
------------------------ ----------------------- -----------------------
(In Thousands) Health Life Total Health Life Total Health Life Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Components of postretirement
benefit expense:(1)
Service cost $ 395 $ 131 $ 526 $ 436 $ 109 $ 545 $ 915 $ 102 $ 1,017
Interest cost 949 586 1,535 1,099 465 1,564 1,704 331 2,035
Amortization of prior
service cost (812) - (812) (771) - (771) - - -
Amortization of loss 4 247 251 - 97 97 - - -
------- ------- ------- ------- ------- ------- ------- ------ -------
Net postretirement benefit
expense $ 536 $ 964 $ 1,500 $ 764 $ 671 $ 1,435 $ 2,619 $ 433 $ 3,052
======= ======= ======= ======= ======= ======= ======= ====== =======
<PAGE>
U.S. TRUST CORPORATION
Composition of accumulated post-
retirement benefit obligation:(1)
Retirees (including covered
dependents) $ 3,996 $ 4,465 $ 8,461 $ 4,252 $ 4,234 $ 8,486 $ 5,390 $1,994 $ 7,384
Fully eligible active employees 2,919 1,344 4,263 3,209 926 4,135 2,381 713 3,094
Other active employees 5,845 1,782 7,627 8,237 2,039 10,276 5,455 1,635 7,090
------- ------- ------- ------- ------- ------- ------- ------ -------
Total obligation 12,760 7,591 20,351 15,698 7,199 22,897 13,226 4,342 17,568
Unrecognized prior service
cost amendment 7,354 - 7,354 7,713 - 7,713 8,484 - 8,484
Unrecognized net gain (loss) 1,531 (3,729) (2,198) (1,659) (3,599) (5,258) (123 (725) (848)
------- ------- ------- ------- ------- ------- ------- ------ -------
Accrued liability $21,645 $ 3,862 $25,507 $21,752 $ 3,600 $25,352 $21,587 $3,617 $25,204
======= ======= ======= ======= ======= ======= ======= ====== =======
(1) The postretirement benefit expense is determined using the assumptions as of the beginning of the year. The
accumulated postretirement benefit obligation is determined using the assumptions as of the end of the year.
</TABLE>
The assumed rate of future increases in per capita cost of health care
benefits (the health care cost trend rate) is 12.9% in 1995, decreasing
gradually to 6% in the year 2009. An increase in the health care cost
trend rate by 1% will increase the annual net postretirement benefit
expense by approximately $66,000 and the accumulated postretirement
benefit obligation by approximately $621,000.
A discount rate of 8.25% was used at December 31, 1994 to measure
the accumulated postretirement benefit obligation.
18. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," ("FAS 107") requires the disclosure
of the estimated fair values of financial instruments. Substantially all
of the Corporation's assets, liabilities and off-balance sheet products
are considered financial instruments as defined by FAS 107. Fair value
is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under
present market conditions.
FAS 107 requires that the fair value of financial instruments be
estimated using various valuation methodologies. Quoted market prices,
when available, are used as the measure of fair value. Where quoted
market prices are not available, fair values have been estimated using
primarily discounted cash flow analyses and other valuation techniques.
These derived fair values are significantly affected by assumptions used,
principally the timing of future cash flows and the discount rate.
Because assumptions are inherently subjective, the estimated fair values
cannot be substantiated by comparison to third party evidence and may not
be indicative of the value that could be realized in a sale or settlement
of the financial instrument.
<PAGE>
U.S. TRUST CORPORATION
The relevance of this information is also severely constrained
because FAS 107 provides only a partial estimate of the fair value of the
Corporation. The FAS 107 disclosures do not provide an estimated fair
value of the various ongoing businesses in which the Corporation
operates. For example, FAS 107 specifically excludes the fair value of
certain fee generating businesses, the value of long-term trust
relationships and anticipated future business activities from its scope.
A discussion of the fair value estimation methodologies used for
material financial instruments follows.
Loans
The estimated fair value of the Corporation's performing fixed rate loans
(primarily residential real estate mortgages) was calculated by
discounting contractual cash flows adjusted for current prepayment
estimates. The discount rates were based on the interest rates charged
to current customers for comparable loans. The Corporation's performing
adjustable rate loans reprice frequently at current market rates.
Therefore, the fair value of these loans has been estimated to be
approximately equal to their carrying amount. Estimated fair value for
nonperforming loans was based upon a discounted estimated cash flow
method and, for residential real estate mortgage loans, current
appraisals. The discount rate used was commensurate with the risk
associated with the estimated cash flows. See "Notes to the Consolidated
Financial Statements No. 6" for additional discussion of the
Corporation's entire loan portfolio.
Securities
The estimated fair value of securities is based upon quoted bid market
prices, where available, or fair value quotes obtained from third party
pricing services. See "Notes to the Consolidated Financial Statements
No. 5" for additional discussion of securities.
Long Term Debt
The estimated fair value of long term debt was calculated using a
discounted cash flow method, where the estimated cash flows considered
contractual principal and interest payments, as well as required sinking
fund payments. The discount rate used consisted of two components.
First, the credit risk spread was determined for each debt issue i.e.,
the spread that the Corporation paid over the comparable risk-free rate
at the date of issuance. The credit risk spread was added to the current
risk-free market interest rate for the comparable remaining maturity.
See "Notes to the Consolidated Financial Statements No. 11" for
additional discussion of long term debt.
A comparison of the fair value and carrying amounts of the
Corporation's significant on-balance sheet financial instruments follows.
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
December 31,
----------------------------------------------
1994 1993
-------------------- --------------------
Carrying Fair Carrying Fair
(In Millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans $1,612* $1,582 $1,385* $1,404
Securities:
Available for sale 1,034 1,034 837 837
Held to maturity - - 87 87
Long term debt 61 59 65 70
* Net of allowance for credit losses.
</TABLE>
Interest Rate Swap Agreements
The Corporation is a net fixed rate payor under its Swaps and at
December 31, 1994 and 1993 had a net payable of $111,000 and $468,000,
respectively. Swaps are used as a hedge of the Corporation's funding of
various fixed rate interest earning assets. The estimated fair value of
Swaps are obtained from dealer quotes. These values represent the
estimated amount that the Corporation would have to pay to terminate the
Swaps, taking into account current interest rates and, when appropriate,
the current creditworthiness of the counterparties. See "Notes to the
Consolidated Financial Statements No. 14" for additional discussion of
Swaps.
Forward Rate Agreements
FRAs are used as a hedge of the Corporation's short-term interest earning
assets. The estimated fair value of FRAs are obtained from dealer
quotes. There were no FRAs outstanding at December 31, 1994. The fair
value of FRAs at December 31, 1993 was nominal. See "Notes to the
Consolidated Financial Statements No. 14" for additional discussion of
FRAs.
A comparison of the fair value and notional amounts of the
Corporation's significant off-balance sheet financial instruments
follows.
<TABLE>
December 31,
----------------------------------------------
1994 1993
-------------------- --------------------
Notional Fair Notional Fair
(In Millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $86 $1.0 $103 $(4.0)
Forward rate agreements - - 150 0.1
<PAGE>
U.S. TRUST CORPORATION
Other Financial Instruments
The Corporation's other financial instruments are generally short-term in
nature and contain very little credit risk. These instruments consist of
cash and due from banks, interest bearing deposits with banks, Federal
funds sold, securities purchased under agreements to resell, accrued
interest receivable and accounts receivable, demand deposit liabilities,
time deposit liabilities, Federal fund purchased, securities sold under
agreements to repurchase, other borrowings and accrued interest payable
and accounts payable. Consequently, carrying amounts of these assets and
liabilities approximate estimated fair value.
19. Retirement Plan
The following table details the components of pension expense (credit)
and the funded status of the Corporation's qualified and non-qualified
retirement plans and the major assumptions used to determine these
amounts.
<PAGE>
U.S. TRUST CORPORATION
</TABLE>
<TABLE>
Qualified Plan Non-Qualified Plan
---------------------------------- -----------------------------------
(In Thousands) 1994 1993 1992 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of pension expense (credit):
Service cost $ 5,615 $ 5,072 $ 4,267 $ 838 $ 260 $ 157
Interest cost 9,534 9,212 8,313 658 355 396
Actual return on plan assets 14,854 (31,233) (15,892) - - -
Net amortization and deferral (33,447) 15,189 821 339 110 191
-------- -------- -------- ------- ------- -------
Net pension expense (credit) $ (3,444) $ (1,760) $ (2,491) $ 1,835 $ 725 $ 744
======== ======== ======== ======= ======= =======
Funded status of retirement plans:
Plan assets, at market value $174,915 $194,141 $167,180 $ - $ - $ -
Actuarial present value of benefit
obligations:
Accumulated benefit obligations:
Vested 98,956 99,757 78,468 4,361 2,684 1,749
Non-vested 7,360 7,519 6,559 507 209 205
-------- -------- -------- ------- ------- -------
Total 106,316 107,276 85,027 4,868 2,893 1,954
Provision for future salary increases 15,503 18,370 17,916 3,609 2,130 2,626
-------- -------- -------- ------- ------- -------
Projected benefit obligations 121,819 125,646 102,943 8,477 5,023 4,580
-------- -------- -------- ------- ------- -------
Excess of plan assets over projected
benefit obligations 53,096 68,495 64,237 (8,477) (5,023) (4,580)
Unrecognized cumulative net losses (gains) (13,446) (32,072) (27,366) 995 1,283 1,459
Prior service cost not yet recognized
in periodic pension costs (396) 1,786 1,976 2,212 245 270
Unrecognized net liability (asset)
at date of initial application (16,791) (19,189) (21,588) 362 414 466
-------- -------- -------- ------- ------- -------
Prepaid (accrued) pension cost $ 22,463 $ 19,020 $ 17,259 $(4,908) $(3,081) $(2,385)
======== ======== ======== ======= ======= =======
Major assumptions at year-end (1):
Discount rate 8.25% 7.5% 8.5% 8.25% 7.5% 8.5%
Rate of increase in compensation 4.5% 4.5% 5.5% 4.5% 4.5% 5.5%
Expected rate of return on plan assets 9% 9% 9% 9% 9% 9%
- -------------------------------------------------------------------------------------------------------------------------
(1) The pension expense (credit) is determined using the assumptions as of the beginning of the year. The funded status
is determined using the assumptions as of the end of the year.
</TABLE>
The Corporation uses the projected unit credit cost method to compute the
vested benefit obligation, where the vested benefit obligation is the
actuarial present value of the vested benefits to which the employee is
entitled based on the employee's expected date of separation or
retirement.
<PAGE>
U.S. TRUST CORPORATION
20. Parent Company Only
Condensed statements of income, condition and cash flows for U.S. Trust
Corporation (Parent Company Only) follow.
<TABLE>
Years Ended December 31,
STATEMENT OF INCOME ---------------------------------
(In Thousands) 1993 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Equity in Net Income (Loss) of Subsidiaries:
Bank $21,607 $41,746 $34,046 *
Non-Bank 8,386 1,862 (1,358)*
Interest Income 2,740 2,658 3,228
------- ------- -------
Total Income 32,733 46,266 35,916
------- ------- -------
Expenses:
Interest Expense 3,779 4,131 4,186
Other Expenses 14,357 585 2,240
------- ------- -------
Total Expenses 18,136 4,716 6,422
------- ------- -------
Income Before Income Taxes 14,597 41,550 29,494
Income Tax Expense (Benefit) (6,370) (717) 743
------- ------- -------
Net Income $20,967 $42,267 $28,751
======= ======= =======
* Equity in Net Income (Loss) of Subsidiaries includes the impact of adopting FAS 106 and FAS 109.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
December 31,
STATEMENT OF CONDITION ----------------------
(In Thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Due from Subsidiary $ 807 $ 219
Due from Other Banks 61 14
-------- --------
Total Due from Banks 868 233
-------- --------
Equity Investments in Subsidiaries:
Bank 239,370 229,239
Non-Bank 34,541 34,165
-------- --------
Total Equity Investments in Subsidiaries 273,911 263,404
-------- --------
Securities Available for Sale, at Estimated Fair Value 27,110 24,078
Other Assets 19,735 5,590
-------- --------
Total Assets $321,624 $293,305
======== ========
LIABILITIES
Due to Subsidiary $ - $ 1,500
Other Liabilities 52,180 14,571
Long Term Debt 46,121 48,647
-------- --------
Total Liabilities 98,301 64,718
-------- --------
TOTAL STOCKHOLDERS' EQUITY 223,323 228,587
-------- --------
Total Liabilities and Stockholders' Equity $321,624 $293,305
======== ========
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
Years Ended December 31,
STATEMENT OF CASH FLOWS ---------------------------------
(In Thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 20,967 $ 42,267 $ 28,751
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Net (Income) of Subsidiaries (29,993) (43,608) (32,688)
Dividends Received from Subsidiaries 11,810 30,000 43,836
Deferred Income Taxes (2,281) 2,445 3,577
Net Change in Accruals, Receivables and Other Assets (11,493) (5,750) 622
Net Change in Accruals, Payables and Other Liabilities 37,326 6,399 2,188
Other, Net 310 683 508
-------- -------- --------
Net Cash Provided by Operating Activities 26,646 32,436 46,794
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Subsidiaries (3,800) (17,028) (11,900)
Net Change in Securities Purchased Under Agreements to Resell - 19,289 (19,289)
Securities:
Proceeds from Sales 8,554 - 3,778
Proceeds from Maturities, Calls and Mandatory Redemptions 1,601 2,234 1,927
Purchases (13,969) (14,517) -
Net Change in Loans to Subsidiaries - 700 (700)
Principal Payment from ESOP 2,526 2,332 2,152
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities (5,088) (6,990) (24,032)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Loans from Subsidiaries (1,500) 1,500 -
Net Change in Short-Term Borrowings - (5,000) 5,000
Repayment of Long Term Debt (2,526) (2,332) (2,152)
Issuance of Common Stock Under Employee Benefit Plans 6,143 5,653 3,745
Purchases of Treasury Stock (4,573) (8,485) (13,277)
Dividends Paid (18,467) (17,205) (15,570)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (20,923) (25,869) (22,254)
-------- -------- --------
Net Change in Cash and Cash Equivalents 635 (423) 508
Cash and Cash Equivalents at January 1 233 656 148
-------- -------- --------
Cash and Cash Equivalents at December 31 $ 868 $ 233 $ 656
======== ======== ========
Income Taxes Paid (Refund) Received $ 4,475 $ 5,285 $ (592)
Interest Expense Paid 3,972 4,258 4,392
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
21. Quarterly Consolidated Statement of Income (Unaudited)
<TABLE>
1994 1993
------------------------------------ -----------------------------------
(In Thousands, Except Fourth Third Second First Fourth Third Second First
Per Share Amounts) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 25,721 $ 28,013 $ 26,348 $ 28,030 $ 27,683 $31,588 $27,284 $29,687
Provision for Credit Losses 500 500 500 500 500 1,000 1,250 1,250
-------- -------- -------- -------- -------- ------- ------- -------
Net Interest Income After Provision for
Credit Losses 25,221 27,513 25,848 27,530 27,183 30,588 26,034 28,437
Total Fees and Other Income 40,510 76,976 75,433 77,276 75,714 68,683 67,353 64,213
-------- -------- -------- -------- -------- ------- ------- -------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses 65,731 104,489 101,281 104,806 102,897 99,271 93,387 92,650
Total Operating Expenses 94,313 82,522 82,329 82,771 87,711 78,328 76,534 72,947
-------- -------- -------- -------- -------- ------- ------- -------
Income (Loss) Before Income Taxes (28,582) 21,967 18,952 22,035 15,186 20,943 16,853 19,703
Income Taxes (13,036) 9,022 8,054 9,365 6,038 9,027 7,078 8,275
-------- -------- -------- -------- -------- ------- ------- -------
Net Income (Loss) $(15,546) $ 12,945 $ 10,898 $ 12,670 $ 9,148 $11,916 $ 9,775 $11,428
======== ======== ======== ======== ======== ======= ======= =======
Net Income (Loss) Per Share:
Primary $ (1.65) $ 1.31 $ 1.10 $ 1.28 $ .92 $ 1.20 $ .99 $ 1.16
======== ======== ======== ======== ======== ======= ======= =======
Fully Diluted $ (1.65) $ 1.30 $ 1.10 $ 1.28 $ .92 $ 1.20 $ .99 $ 1.15
======== ======== ======== ======== ======== ======= ======= =======
</TABLE>
Report of Independent Accountants
To the Board of Directors and Stockholders of U.S. Trust Corporation:
We have audited the accompanying consolidated statements of condition of
U.S. Trust Corporation and Subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
<PAGE>
U.S. TRUST CORPORATION
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
U.S. Trust Corporation and Subsidiaries at December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 10 and 17 to the consolidated financial
statements, U.S. Trust Corporation and Subsidiaries has adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
and Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," retroactive
to January 1, 1992.
Coopers & Lybrand L.L.P.
New York, New York
February 14, 1995
<PAGE>
U.S. TRUST CORPORATION
Analysis of Change in Net Interest Income
For the Years Ended December 31,
The following table, on a taxable equivalent basis, is an analysis of the
year-to-year changes in the categories of interest income and interest
expense resulting from changes in volume and rate.
<TABLE>
1994 Compared to 1993 1993 Compared to 1992
Increase (Decrease) Due to Change in: Increase (Decrease) Due to Change in:
------------------------------------- -------------------------------------
Average Average Average Average
(In Thousands) Balance Rate Total Balance Rate Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits with Banks.. $(3,079) $ 1,577 $ (1,502) $ (137) $ (1,089) $ (1,226)
Loans (1)(2).......................... 14,912 2,373 17,285 11,112 (4,068) 7,044
Federal Funds Sold and Securities
Purchased Under Agreements to Resell (5,917) 2,731 (3,186) 5,662 (1,787) 3,875
Securities (3):
U.S. Government Obligations......... 21,851 (10,190) 11,661 (7,451) (1,601) (9,052)
Federal Agency Obligations.......... (4,288) 2,070 (2,218) 16,368 (8,490) 7,878
State and Municipal Obligations..... (2,677) (958) (3,635) (5,056) (421) (5,477)
Collateralized Mortgage Obligations. (5,333) 2,670 (2,663) (4,890) (4,219) (9,109)
Other Securities.................... 440 178 618 339 (310) 29
------- -------- -------- ------- -------- --------
Total Securities...................... 9,993 (6,230) 3,763 (690) (15,041) (15,731)
------- -------- -------- ------- -------- --------
Total Interest Earning Assets......... 15,909 451 16,360 15,947 (21,985) (6,038)
------- -------- -------- ------- -------- --------
Interest Bearing Sources of Funds:
Interest Bearing Deposits............. 2,966 7,484 10,450 5,090 (10,062) (4,972)
Federal Funds Purchased, Securities
Sold Under Agreements to
Repurchase and Other Borrowings..... 9,053 6,430 15,483 (3,500) (2,347) (5,847)
Long Term Debt........................ 253 (34) (287) (84) (62) (146)
------- -------- -------- ------- -------- --------
Total Sources on Which Interest
is Paid............................. 11,766 13,880 25,646 1,506 (12,471) (10,965)
------- -------- -------- ------- -------- --------
Change in Net Interest Income......... $ 4,143 $(13,429) $ 19,286 $14,441 $ (9,514) $ 4,927
======= ======== ======== ======= ======== ========
Changes that are not due solely to volume or rate have been allocated ratably to their respective categories.
(1) The average principal balances of non-accrual and reduced rate loans are included in the above figures.
(2) Loans include the Loan to ESOP, which had an average balance of $16,385,000 in 1994, $18,902,000 in 1993 and
$21,211,000 in 1992.
(3) Includes securities classified as available for sale and held to maturity during 1994 and at December 31, 1993 at
amortized cost and securities classified as investment securities in 1992. The average balance and average rate for
securities available for sale has been calculated using their amortized cost.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
Three-Year Net Interest Income and Average Balances
For the Years Ended December 31,
<TABLE>
1994
--------------------------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with Banks............................... $ 82,632 $ 3,546 4.29
---------- --------
Securities (1):
U.S. Government Obligations...................................... 768,798 34,718 4.52
Federal Agency Obligations....................................... 598,097 36,194 6.05
State and Municipal Obligations (2).............................. 81,189 8,068 9.94
Collateralized Mortgage Obligations (3).......................... 79,972 3,533 4.42
Other Securities................................................. 52,774 2,135 4.05
---------- --------
Total Securities................................................... 1,580,830 84,648 5.35
---------- --------
Loans (2)(4)(5).................................................... 1,324,285 94,549 7.14
---------- --------
Federal Funds Sold and Securities Purchased Under
Agreements to Resell............................................. 243,944 9,027 3.70
---------- --------
Total Interest Earning Assets...................................... 3,231,691 191,770 5.93
---------- --------
Allowance for Credit Losses........................................ (14,093)
Cash and Due From Banks............................................ 321,549
Other Assets....................................................... 465,752
----------
Total Assets....................................................... $4,004,899
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.......................................... $1,373,421 47,928 3.49
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings.................................. 595,994 25,992 4.36
Long Term Debt..................................................... 62,513 5,084 8.13
---------- --------
Total Sources on Which Interest is Paid............................ 2,031,928 79,004 3.89
---------- --------
Total Non-Interest Bearing Deposits................................ 1,565,158
Other Liabilities.................................................. 164,443
Stockholders' Equity (5)........................................... 243,370
----------
Total Liabilities and Stockholders' Equity......................... $4,004,899
==========
Net Interest Income................................................ $112,766
========
Net Yield on Interest Earning Assets............................... 3.49
<PAGE>
U.S. TRUST CORPORATION
- ------------------------------------------------------------------------------------------------------------------------
(1) Includes securities classified as available for sale and held to maturity during 1994
and at December 31, 1993 at amortized cost and securities classified as investment
securities in 1992. The average balance and average rate for securities available
for sale has been calculated using their amortized cost.
(2) Yields on state and municipal obligations are stated on a taxable equivalent basis,
employing the Federal statutory income tax rate adjusted for the effect of state and
local taxes, resulting in effective tax rate of approximately 47% for 1994, 1993
and 1992.
(3) Primarily comprised of variable rate collateralized mortgage obligations.
(4) The average principal balances of non-accrual and reduced rate loans are included
in the above figures.
(5) Loans include the Loan to ESOP, which had an average balance of $16,385,000 in 1994,
$18,902,000 in 1993 and $21,211,000 in 1992.
</TABLE>
<TABLE>
1993
--------------------------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with Banks............................... $ 154,376 $ 5,048 3.27
---------- --------
Securities (1):
U.S. Government Obligations...................................... 394,717 23,057 5.84
Federal Agency Obligations....................................... 668,951 38,412 5.74
State and Municipal Obligations (2).............................. 107,463 11,703 10.89
Collateralized Mortgage Obligations (3).......................... 200,714 6,196 3.09
Other Securities................................................. 41,571 1,517 3.65
---------- --------
Total Securities................................................... 1,413,416 80,885 5.72
---------- --------
Loans (2)(4)(5).................................................... 1,114,575 77,264 6.93
---------- --------
Federal Funds Sold and Securities Purchased Under
Agreements to Resell............................................. 403,846 12,213 3.02
---------- --------
Total Interest Earning Assets...................................... 3,086,213 175,410 5.68
---------- --------
Allowance for Credit Losses........................................ (13,601)
Cash and Due From Banks............................................ 324,802
Other Assets....................................................... 423,888
----------
Total Assets....................................................... $3,821,302
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.......................................... $1,277,467 37,478 2.93
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings.................................. 356,199 10,509 2.95
Long Term Debt..................................................... 65,619 5,371 8.19
---------- --------
Total Sources on Which Interest is Paid............................ 1,699,285 53,358 3.14
---------- --------
<PAGE>
U.S. TRUST CORPORATION
Total Non-Interest Bearing Deposits................................ 1,760,892
Other Liabilities.................................................. 135,749
Stockholders' Equity (5)........................................... 225,376
----------
Total Liabilities and Stockholders' Equity......................... $3,821,302
==========
Net Interest Income................................................ $122,052
========
Net Yield on Interest Earning Assets............................... 3.95
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
1992
---------------------------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with Banks............................... $ 157,903 $ 6,274 3.97%
---------- --------
Securities (1):
U.S. Government Obligations...................................... 521,049 32,109 6.16
Federal Agency Obligations....................................... 435,502 30,534 7.01
State and Municipal Obligations (2).............................. 153,795 17,180 11.17
Collateralized Mortgage Obligations (3).......................... 329,014 15,305 4.65
Other Securities................................................. 33,858 1,488 4.40
---------- --------
Total Securities................................................... 1,473,218 96,616 6.56
---------- --------
Loans (2)(4)(5).................................................... 962,301 70,220 7.30
---------- --------
Federal Funds Sold and Securities Purchased Under
Agreements to Resell............................................. 240,520 8,338 3.47
---------- --------
Total Interest Earning Assets...................................... 2,833,942 181,448 6.40
---------- --------
Allowance for Credit Losses........................................ (10,446)
Cash and Due From Banks............................................ 286,450
Other Assets....................................................... 378,032
----------
Total Assets....................................................... $3,487,978
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.......................................... $1,140,696 42,450 3.72
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings.................................. 466,506 16,356 3.51
Long Term Debt..................................................... 66,647 5,517 8.28
---------- --------
Total Sources on Which Interest is Paid............................ 1,673,849 64,323 3.84
---------- --------
Total Non-Interest Bearing Deposits................................ 1,507,622
Other Liabilities.................................................. 97,126
Stockholders' Equity (5)........................................... 209,381
----------
Total Liabilities and Stockholders' Equity......................... $3,487,978
==========
Net Interest Income................................................ $117,125
========
Net Yield on Interest Earning Assets............................... 4.13
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
Statistical Summary
<TABLE>
(In Millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities (Carrying Amount at Year End) (1):
U.S. Government Obligations..................................................... $ 601 $212 $ 336
Federal Agency Obligations...................................................... 240 439 424
State and Municipal Obligations................................................. 76 90 131
Collateralized Mortgage Obligations............................................. 59 116 285
Other Securities................................................................ 58 66 20
------ ---- ------
Total......................................................................... $1,034 $923 $1,196
====== ==== ======
(1) 1994 amounts are comprised of securities available for sale, that are carried at their estimated fair value. 1993
amounts include securities available for sale, that are carried at their estimated fair value, and securities held to
maturity, that are carried at their amortized cost. 1992 amounts consist of investment securities, that are carried
at their amortized cost.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
Within 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years
--------------- --------------- --------------- ---------------
Weighted Weighted Weighted Weighted
Average Average Average Average
(Dollars in Millions) Amount Yield(2) Amount Yield(2) Amount Yield(2) Amount Yield(2) Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity Schedule of Securities Based
on Amortized Cost at December 31, 1994:(3)
U.S. Government Obligations..... $516 5.55% $ 91 4.24% $ - -% $ - -% $ 607
Federal Agency Obligations...... 54 5.35 153 7.38 2 7.00 31 6.53 240
State and Municipal Obligations. 11 13.14 48 10.08 1 10.00 15 8.17 75
Collateralized Mortgage
Obligations................... 26 6.22 14 5.48 - - 19 6.61 59
Other Securities................ 48 5.07 6 6.34 - - - - 54
---- ---- ---- ---- ------
Total......................... $655 $312 $ 3 $ 65 $1,035
==== ==== ==== ==== ======
(2) Yields have been computed by dividing annualized interest income, on a taxable equivalent basis, by the amortized cost
of the respective securities.
(3) Includes securities available for sale; Excludes Federal Reserve Bank and Federal Home Loan Bank stock of $3.8
million; Excludes unrealized losses of $5.8 million related to securities available for sale.
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands) Within 1 Year 1-5 Years Over 5 Years Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Schedule of Loans at December 31, 1994:
Private banking:
Residential real estate mortgages (4)........... $194,743 $145,660 $510,671 $ 851,074
Other........................................... 392,467 10,174 17,801 420,442
-------- -------- -------- ----------
Total private banking loans....................... 587,210 155,834 528,472 1,271,516
-------- -------- -------- ----------
Short-term trust credit facilities................ 215,105 - - 215,105
Loans to financial institutions for purchasing and
carrying securities............................. 126,640 - - 126,640
All other......................................... 10,945 1,984 708 13,637
-------- -------- -------- ----------
Total........................................... $939,900 $157,818 $529,180 $1,626,898
======== ======== ======== ==========
Interest Sensitivity of Loans at December 31, 1994:
Loans with predetermined interest rates........... $105,635 $390,914 $ 496,549
Loans with floating or adjustable interest rates.. 52,183 138,266 190,449
-------- -------- ----------
Total........................................... $157,818 $529,180 $ 686,998
======== ======== ==========
(4) Maturities are based upon the contractual terms of the loans.
</TABLE>
Statistical Summary
<TABLE>
1994 1993 1992
---------------- ---------------- ----------------
(Dollars in Millions) Amount Rate Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Analysis of Average Daily Deposits:
Non-Interest Bearing Deposits................. $1,565 $1,761 $1,508
Certificates of Deposit of $100,000 or more... 33 4.18% 26 3.04% 33 4.01%
Money Market and Other Savings Deposits....... 1,340 3.45 1,251 2.93 1,107 3.71
------ ------ ------
Total Deposits.............................. $2,938 $3,038 $2,648
====== ====== ======
</TABLE>
<PAGE>
U.S. TRUST CORPORATION
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
Certificates Other
(In Millions) of Deposit Deposits
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maturity Distribution of Interest Bearing Deposits in
Amounts of $100,000 or more at December 31, 1994:
Time remaining until maturity:
Three months or less.............................................................. $31 $1,127
Three through six months.......................................................... 6 -
Six through twelve months......................................................... 1 -
Over twelve months................................................................ 5 -
--- ------
Total........................................................................... $43 $1,127
=== ======
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
Market Price of the Corporation's Common Shares
and Related Security Holder Matters
The common shares of the Corporation are traded in the over-the-counter
market. Market prices (based on NASDAQ national market prices as
reported in The Wall Street Journal) and dividends declared per share for
the past two years are shown below:
- -------------------------------------------------------------------------
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For Each Quarter
1994 High.............................................................. $52 7/8 $52 1/2 $52 1/2 $65
Low............................................................... 49 1/2 49 3/4 50 1/2 52
Cash Dividends Declared........................................... 0.50 0.50 0.50 0.50
1993 High.............................................................. $58 1/2 $59 $54 1/2 $54 1/2
Low............................................................... 49 1/4 50 1/4 51 1/4 52
Cash Dividends Declared........................................... 0.47 0.47 0.47 0.47
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
As of January 1, 1995, there were approximately 2,085 record holders of
the Corporation's common shares.
<PAGE>
U.S. TRUST CORPORATION
Summary of Credit Loss Experience
(In Thousands) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Analysis of Allowance for Credit Losses:
Balance, January 1.................................... $ 13,393 $ 11,676 $ 8,661 $ 8,599 $ 7,300
---------- ---------- -------- -------- --------
Charge-Offs:
Private banking..................................... (1,349) (3,762) (2,856) (5,776) (1,743)
Residual corporate loans............................ (150) (338) (710) (509) (5,878)
---------- ---------- -------- -------- --------
Total charge-offs..................................... (1,499) (4,100) (3,566) (6,285) (7,621)
---------- ---------- -------- -------- --------
Recoveries:
Private banking..................................... 611 612 465 133 226
Residual corporate loans............................ 194 1,205 116 189 318
---------- ---------- -------- -------- --------
Total recoveries...................................... 805 1,817 581 322 544
---------- ---------- -------- -------- --------
Net charge-offs....................................... (694) (2,283) (2,985) (5,963) (7,077)
---------- ---------- -------- -------- --------
Provision charged to income........................... 2,000 4,000 6,000 6,025 8,376
---------- ---------- -------- -------- --------
Balance, December 31.................................. $ 14,699 $ 13,393 $ 11,676 $ 8,661 $ 8,599
========== ========== ======== ======== ========
Loan Statistics (Dollars in Thousands):
Average total loans................................... $1,307,900 $1,095,673 $941,090 $739,316 $710,715
Allowance for credit losses, end of year,
as a percent of average total loans................. 1.12% 1.22% 1.24% 1.17% 1.21%
Net loans charged off as a percent of
average total loans................................. 0.05 0.21 0.32 0.81 1.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation maintains the allowance for credit losses at a level
deemed to be adequate. The level of the allowance is based on
management's judgment as to the current condition of the credit
portfolio, which includes loans, commitments to extend credit and standby
letters of credit, determined by a continuous surveillance process. In
addition, management looks to past experience, current loan composition
and volume and general economic conditions.
Senior management determines, at least quarterly, which credits are
to be charged off partially or in full. This is based on a review of all
underperforming credits highlighted in the surveillance process. Loan
officers are expected to be the first to identify potential credit
problems. In addition, experienced credit review professionals provide
independent internal oversight of these credits. Credit reviews by the
Federal Reserve and New York State Bank Examiners, as well as our
certified public accounting firm, as part of the regular bank examination
and audit processes, are also considered in the credit surveillance
process.
<PAGE>
U.S. TRUST CORPORATION
Since substantially all of the Corporation's loan portfolio relates
to private banking accounts, the Corporation does not attempt to allocate
the allowance among specific credit categories.
<PAGE>
<PAGE>
<TABLE>
EXHIBIT 21
U. S. Trust Corporation
List of Subsidiaries
State or Other Jurisdiction Percent
of Incorporation Owned
--------------------------- -------
<S> <C> <C>
United States Trust Company
of New York New York 100.0%
United States Trust Company
International Corporation United States 100.0
United States Trust Company of
New York (Grand Cayman) Ltd. Cayman Islands 100.0
UST Overseas Corporation Delaware 100.0
Foreign & Colonial Asset
Management London, England 50.0
UST Property Company, Inc. * New York 100.0
U.S. Trust Company of California, N.A. California 100.0
UST Fiduciary Services Ltd. Delaware 100.0
U.S. Trust Company of Connecticut Connecticut 100.0
U.S. Trust Company of Florida
Savings Bank Florida 100.0
U.S. Trust Company of New Jersey New Jersey 100.0
UST Securities Corporation New Jersey 100.0
U.S. Trust Company Limited New York 100.0
U.S. Trust Company of Wyoming Wyoming 100.0
U.S.T. L.P.O. Corp. Delaware 100.0
U.S. Trust Company of Texas, N. A. Texas 100.0
Denker & Goodwin, Incorporated Texas 100.0
UST Financial Services Corp. New York 100.0
Campbell, Cowperthwait & Company Delaware 100.0
CTMC Holding Company Oregon 100.0
CTC Consulting, Inc. Oregon 100.0
U.S. Trust Company of the Pacific
Northwest Oregon 100.0
Mutual Funds Service Company Delaware 100.0
Mutual Funds Service Company
(Canada) Ltd. Ontario, Canada 100.0
Technologies Holding Corporation Delaware 100.0
FTI Partner Corporation New York 100.0
</TABLE>
* Incorporated March 3, 1995
-1-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (i) the
Registration Statements on Form S-8 of U. S. Trust Corporation (File
No. 2-78763, File No. 33-16162, File No. 33-29738 and File No. 33-51463)
pertaining to the United States Trust Company of New York and Affiliated
Companies 1981 Incentive Stock Option Plan, 1986 Stock Option Plan and
1989 Stock Compensation Plan, (ii) the Registration Statements on Form
S-8 of U. S. Trust Corporation (File No. 33-00028, File No. 33-5433 and
File No. 33-22453) pertaining to the Employees' Profit-Sharing Plan of
United States Trust Company of New York and Affiliated Companies, (iii)
the Registration Statement on Form S-8 of U. S. Trust Corporation (File
No. 33-34140) pertaining to the U. S. Trust Corporation Stock Option
Plan for Non-Employee Directors, (iv) the Registration Statement on
Form S-3 of U. S. Trust Corporation (File No.33-44058) pertaining to an
offering by certain selling shareholders of up to 206,307 Common Shares,
par value $1 per share, of U. S. Trust Corporation, (v) the Registration
Statement on Form S-3 of U. S. Trust Corporation (File No. 33-49163)
pertaining to an offering by certain selling shareholders of up to
111,109 Common Shares, par value $1 per share, of U. S. Trust
Corporation and (vi) the Registration Statement on Form S-3 of U.S.
Trust Corporation (File No. 33-49627) pertaining to an offering by
certain selling shareholders of up to 89,000 Common Shares, par value $1
per share, of U.S. Trust Corporation of our report dated February 14, 1995,
which includes an explanatory paragraph regarding the adoption of new
standards of accounting for postretirement benefits other than pensions and
income taxes, on our audits of the consolidated financial statements
of U. S. Trust Corporation and Subsidiaries as of December 31, 1994 and
1993 and, for each of the three years in the period ended December 31, 1994,
which report is included in Exhibit 13 of this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
March 10, 1995
-1-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000225971
<NAME> SETH UGELOW
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 164610
<INT-BEARING-DEPOSITS> 21524
<FED-FUNDS-SOLD> 120000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1033526
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1626898
<ALLOWANCE> 14699
<TOTAL-ASSETS> 3223211
<DEPOSITS> 2440371
<SHORT-TERM> 350515
<LIABILITIES-OTHER> 148078
<LONG-TERM> 60924
<COMMON> 11581
0
0
<OTHER-SE> 211742
<TOTAL-LIABILITIES-AND-EQUITY> 3223211
<INTEREST-LOAN> 94525
<INTEREST-INVEST> 80018
<INTEREST-OTHER> 12573
<INTEREST-TOTAL> 187116
<INTEREST-DEPOSIT> 47928
<INTEREST-EXPENSE> 79004
<INTEREST-INCOME-NET> 108112
<LOAN-LOSSES> 2000
<SECURITIES-GAINS> (42118)
<EXPENSE-OTHER> 341935
<INCOME-PRETAX> 34372
<INCOME-PRE-EXTRAORDINARY> 20967
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20967
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.09
<YIELD-ACTUAL> 3.49
<LOANS-NON> 6371
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13393
<CHARGE-OFFS> 1499
<RECOVERIES> 805
<ALLOWANCE-CLOSE> 14699
<ALLOWANCE-DOMESTIC> 14699
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14699
</TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
U.S. TRUST CORPORATION
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
U.S. TRUST CORPORATION
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $1.00 par value per share.
- ------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
10,449,510 shares of common stock, representing the estimated maximum
number of shares to be outstanding at the time of the Distribution and the
Merger.
- ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
1/50 of 1% of the sum of (i) $363,500,000 (the maximum consideration to be
paid in the Merger) plus (ii) $168,091,000 (the book value as of September
30, 1994, of the shares to be distributed in the Distribution).
- ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$531,591,000
- ------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
N/A
- ------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
N/A
- ------------------------------------------------------------------------------
(3) Filing party:
N/A
- ------------------------------------------------------------------------------
(4) Date filed:
N/A
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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[Letterhead of]
U.S. TRUST CORPORATION
February 9, 1995
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
U.S. Trust Corporation ("UST"), which will be held at the offices of United
States Trust Company of New York, 114 West 47th Street, New York, New York, on
March 22, 1995, at 10:00 A.M., local time. Enclosed are a Notice of Special
Meeting of Stockholders, a Proxy Statement-Prospectus and a Proxy relating to
the Special Meeting.
As we have previously announced, UST has agreed, subject to approval by
UST's stockholders, to sell UST's securities processing businesses and related
back office operations, including the assets and certain of the liabilities
related thereto (collectively, the "Chase Acquired Business") to The Chase
Manhattan Corporation ("Chase") in exchange for shares of Chase common stock,
par value $2.00 per share ("Chase Common Stock"), to be distributed directly
to UST stockholders in a tax-free transaction. Because the transaction is
structured as a tax-free merger (the "Merger") between UST and Chase, all of
the businesses, assets and liabilities of UST other than the Chase Acquired
Business (collectively, the "Core Businesses"), which include UST's asset
management, private banking, special fiduciary, corporate trust and other non-
processing businesses, will be transferred to a newly organized holding
company, New USTC Holdings Corporation ("Spinco"), and the stock of Spinco
will be distributed to UST stockholders on a share-for-share basis prior to
the Merger. Accordingly, UST stockholders will retain their equity interests
in the Core Businesses in the form of stock in Spinco, which will assume the
name "U.S. Trust Corporation" at the time of the transaction.
At the Special Meeting you will be asked to consider and vote upon two
proposals relating to the foregoing transactions which are described in the
Proxy Statement-Prospectus: (i) to approve the distribution described in the
Agreement and Plan of Distribution (the "Distribution Agreement") to be
entered into among UST, Spinco, United States Trust Company of New York and
New U.S. Trust Company of New York, whereby UST will spin off to its
stockholders on a share-for-share basis in a non-taxable distribution (the
"Distribution") all the shares of Spinco, which will own the Core Businesses
at the time of the Distribution; and (ii) to authorize and adopt the Agreement
and Plan of Merger (the "Merger Agreement") dated as of November 18, 1994,
between UST and Chase, whereby UST (which will then hold only the Chase
Acquired Business) will be merged with and into Chase. In the Merger, holders
of common stock of UST will receive for each share owned by them the number of
shares of Chase Common Stock determined as provided in the Merger Agreement.
The proposed Distribution and Merger are described in the accompanying
Proxy Statement-Prospectus, the forepart of which contains a summary of the
terms of the Merger and the Distribution and other information relating to the
transaction. Appendix H to the Proxy Statement-Prospectus contains a
description of the Core Businesses which will be spun off to UST stockholders
in the Distribution and other information relating to Spinco.
After careful consideration, the Board of Directors has determined the
Merger to be fair to and in the best interests of UST and its stockholders.
The Board of Directors has approved the Distribution and the Merger Agreement
and recommends the approval of the Distribution and the authorization and
adoption of the Merger Agreement by UST stockholders.
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CS First Boston Corporation, UST's financial advisor in connection with
the Merger, has rendered an opinion to the Board of Directors that, as of the
date of this letter, the consideration to be received by UST stockholders in
connection with the Merger is fair to such stockholders from a financial point
of view.
All stockholders are invited to attend the Special Meeting in person.
Approval of the Distribution and authorization and adoption of the Merger
Agreement require, in each case, the affirmative vote of two-thirds (or
66 2/3%) of the total number of shares entitled to be voted at the Special
Meeting. Because of the significance of the proposed transaction to UST, your
participation in the meeting, in person or by proxy, is especially important.
In order that your shares may be represented at the Special Meeting, you
are urged to promptly complete, sign, date and return the accompanying Proxy
in the enclosed envelope, whether or not you plan to attend the Special
Meeting. If you attend the Special Meeting in person, you may, if you wish,
vote personally on all matters brought before the Special Meeting even if you
have previously returned your Proxy.
Sincerely,
H. MARSHALL SCHWARZ
Chairman and Chief Executive Officer
<PAGE>
U.S. TRUST CORPORATION
114 West 47th Street
New York, NY 10036
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to Be Held on March 22, 1995
NOTICE HEREBY IS GIVEN that a Special Meeting of Stockholders of U.S.
Trust Corporation, a New York corporation ("UST"), has been called by the
Board of Directors of UST and will be held at the offices of United States
Trust Company of New York, 114 West 47th Street, New York, New York, in the
Auditorium on the first floor, at 10:00 A.M., local time on March 22, 1995,
for the following purposes:
1. To consider and vote upon a proposal (the "Distribution
Proposal") to approve the distribution described in the Agreement and
Plan of Distribution, to be entered into immediately prior to the Merger
(as defined below), among UST, New USTC Holdings Corporation ("Spinco"),
United States Trust Company of New York and New U.S. Trust Company of New
York, pursuant to which, among other things, immediately prior to the
Merger, UST will spin off to its stockholders on a share-for-share basis
in a non-taxable distribution (the "Distribution") all the shares of
Spinco, which will own at the time of the Distribution all the
businesses, assets and liabilities of UST (collectively, the "Core
Businesses") other than its securities processing business and related
back office operations, including the assets and certain liabilities
related thereto (collectively, the "Chase Acquired Business"), which will
be acquired by The Chase Manhattan Corporation, a Delaware corporation
("Chase"), in the Merger, all as more fully described in the accompanying
Proxy Statement-Prospectus, including the Appendices thereto.
2. To consider and vote upon a proposal (the "Merger Proposal") to
authorize and adopt the Agreement and Plan of Merger, dated as of
November 18, 1994 (as it may be amended, supplemented or otherwise
modified from time to time, the "Merger Agreement"), between UST and
Chase, pursuant to which, among other things, contingent upon and
immediately following the Distribution, UST will be merged with and into
Chase upon the terms and conditions contained in the Merger Agreement
(the "Merger"), all as more fully described in the accompanying Proxy
Statement-Prospectus, including the Appendices thereto.
At the time the Merger becomes effective (the "Effective Time"), (i)
UST (which will then hold only the Chase Acquired Business) will be
merged with and into Chase, with Chase surviving the Merger, (ii) each
share of UST common stock, par value $1.00 per share ("UST Common
Stock"), outstanding immediately prior to the Effective Time (other than
any shares of UST Common Stock owned by Chase or any wholly owned
subsidiary of Chase or UST (other than in a fiduciary, custodial or
similar capacity) and any shares held by UST stockholders who perfect,
under New York law, their right to dissent to the Merger) will be
converted into the right to receive the number of shares of Chase common
stock, par value $2.00 per share, determined as provided in the Merger
Agreement, and (iii) each share of UST Common Stock issued and
outstanding immediately prior to the Effective Time and owned by UST as
treasury stock and any shares of UST Common Stock owned by Chase or any
wholly owned subsidiary of Chase or UST (other than in a fiduciary,
custodial or similar capacity) will cease to be outstanding, will be
canceled and retired without payment of any consideration therefor, and
will cease to exist.
3. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Holders of shares of UST Common Stock will be entitled to dissenters'
rights in connection with the Merger as provided in the Merger Agreement and
as more fully described in the accompanying Proxy Statement-Prospectus.
It is a condition to consummation of the Distribution that the Merger
Agreement have been authorized and adopted by the UST stockholders, and it is
a condition to consummation of the Merger that the Distribution have been
approved by the UST stockholders.
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The Proxy Statement-Prospectus and the Appendices thereto (including the
Merger Agreement and the Distribution Agreement attached as Appendix A and
Appendix B thereto, respectively) form a part of this Notice.
Only holders of record of UST Common Stock at the close of business on
February 1, 1995, are entitled to notice of and to vote at the Special Meeting
or any adjournments or postponements thereof. Approval of the Distribution
Proposal and authorization and adoption of the Merger Proposal each requires
the affirmative vote of two-thirds (or 66 2/3%) of the total number of shares
entitled to be voted at the Special Meeting.
By Order of the Board of Directors,
H. MARSHALL SCHWARZ
Chairman and Chief Executive Officer
New York, New York
February 9, 1995
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER
IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO
ITS EXERCISE.
THE BOARD OF DIRECTORS OF U.S. TRUST CORPORATION RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE DISTRIBUTION AND TO AUTHORIZE AND ADOPT THE
MERGER AGREEMENT.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
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U.S. TRUST CORPORATION
PROXY STATEMENT
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THE CHASE MANHATTAN CORPORATION
PROSPECTUS
This Proxy Statement-Prospectus is being furnished to the stockholders of
U.S. Trust Corporation, a New York corporation ("UST"), in connection with the
solicitation of proxies by UST's Board of Directors (the "UST Board") from
holders of outstanding shares of UST common stock, par value $1.00 per share
("UST Common Stock"), for use at the Special Meeting of Stockholders of UST to
be held on March 22, 1995, and at any adjournments or postponements thereof
(the "Special Meeting").
At the Special Meeting, UST stockholders will be asked to consider and
vote upon (i) a proposal (the "Distribution Proposal") to approve the
distribution described in the Agreement and Plan of Distribution to be entered
into immediately prior to the Merger (as defined below), among UST, New USTC
Holdings Corporation, a New York corporation and a wholly owned subsidiary of
UST ("Spinco"), United States Trust Company of New York and New U.S. Trust
Company of New York, the form of which is attached as Appendix B to this Proxy
Statement-Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the
"Distribution Agreement"), whereby UST will spin off to its stockholders on a
share-for-share basis, in a non-taxable distribution (the "Distribution"), all
the then-outstanding shares of Spinco, which will own at the time of the
Distribution all the businesses, assets and liabilities of UST other than its
securities processing business and related back office operations (including
the assets and certain liabilities related thereto); and (ii) a proposal (the
"Merger Proposal") to authorize and adopt the Agreement and Plan of Merger,
dated as of November 18, 1994, between UST and The Chase Manhattan
Corporation, a Delaware corporation ("Chase"), which is attached as Appendix A
to this Proxy Statement-Prospectus and is incorporated herein by reference (as
it may be amended, supplemented or otherwise modified from time to time, the
"Merger Agreement"). The Merger Agreement provides, subject to the
satisfaction or waiver of certain conditions, that (i) UST will effect the
Distribution pursuant to the Distribution Agreement and (ii) UST will
immediately thereafter be merged with and into Chase (the "Merger"), with
Chase surviving the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). At the time the Merger becomes effective (the
"Effective Time"), each share of UST Common Stock outstanding immediately
prior to the Effective Time (other than any shares of UST Common Stock owned
by Chase or any wholly owned subsidiary of Chase or UST (other than in a
fiduciary, custodial or similar capacity) and any shares held by UST
stockholders who perfect, under New York law, their right to dissent to the
Merger) will be converted into the right to receive the number of shares of
Chase common stock, par value $2.00 per share ("Chase Common Stock"), equal to
(a) $363,500,000 divided by (b) the product of (i) the greater of (A) the
amount representing the 10-day average of the daily average of the high and
low sale prices for Chase Common Stock on each of the 10 trading days
immediately preceding the last business day before the date on which the
Effective Time occurs (the "Closing Date") and (B) $31.00, multiplied by (ii)
the number of shares of UST Common Stock outstanding immediately prior to the
Effective Time. The maximum number of shares of Chase Common Stock which may
be issued to UST Stockholders in the Merger is 11,725,806 shares. If the
market value of Chase Common Stock on the Closing Date is less than the
greater of the Average Value of Chase Common Stock (as defined herein) and
$31.00, then the value on the Closing Date of the aggregate consideration
received by UST stockholders in the Merger will be less than $363,500,000.
UST has agreed to pay Chase a termination payment in the event the Merger
Agreement is terminated for certain specified reasons, including the failure
of UST stockholders to approve the Distribution or to authorize and adopt the
Merger Agreement. See "Summary -- The Transactions -- The Merger".
This Proxy Statement-Prospectus is first being mailed to UST stockholders
on or about February 14, 1995.
This Proxy Statement-Prospectus also constitutes the Prospectus of Chase
under the Securities Act of 1933, as amended, for the public offering of up to
11,725,806 shares of Chase Common Stock to be received by UST stockholders in
the Merger. This Prospectus does not cover resales of such stock, and no
person is authorized to use this Prospectus in connection with any such
resale.
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THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement-Prospectus is February 9, 1995
<PAGE>
AVAILABLE INFORMATION
UST and Chase are (and, prior to the Distribution, Spinco will be)
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, file
(and, in the case of Spinco, will file) reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
The reports, proxy statements and other information filed by UST and Chase
(and when filed, by Spinco) with the Commission can be inspected and copied at
the Commission's public reference room located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the public reference facilities in the
Commission's regional offices located at: 7 World Trade Center, 13th Floor,
New York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, reports, proxy statements and other information concerning
Chase may be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005, and reports, proxy statements and
other information concerning UST (and when filed, Spinco) may be inspected at
the offices of the National Association of Securities Dealers, Inc. (the
"NASD"), 1735 K Street, N.W., Washington, D.C. 20006.
Chase has filed a Registration Statement on Form S-4 (including exhibits
and amendments thereto, the "Chase Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering shares of
Chase Common Stock issuable in the Merger. This Proxy Statement-Prospectus
constitutes both the Proxy Statement of UST relating to the solicitation of
proxies for use at the Special Meeting and the Prospectus of Chase filed as
part of the Chase Registration Statement.
This Proxy Statement-Prospectus does not contain all of the information
set forth in the Chase Registration Statement covering the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the Commission, and to which portions reference is hereby made
for further information with respect to Chase and the securities offered
hereby. Statements contained herein concerning any documents which are filed
as exhibits to the Chase Registration Statement are not necessarily complete
and, in each instance, reference is made to the copies of such documents filed
as such exhibits. Each such statement is qualified in its entirety by such
reference. This Proxy Statement-Prospectus does not contain all of the
information set forth in the Registration Statement on Form 10 (the "Form 10")
filed by Spinco with the Commission in connection with the Distribution.
Certain important information relating to the Distribution is set forth in the
Information Statement filed as a part of the Form 10, which Information
Statement is a part of this Proxy Statement-Prospectus and is attached as
Appendix H hereto (the "Information Statement"). See "Additional Information"
in the Information Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement-Prospectus incorporates by reference documents not
presented herein or delivered herewith. Documents related to Chase, excluding
exhibits unless specifically incorporated herein, are available without charge
upon request to The Chase Manhattan Corporation, 1 Chase Manhattan Plaza, New
York, New York 10081, Attention: Office of the Secretary. Telephone requests
may be directed to the Office of the Secretary at (212) 552-6511. Documents
relating to UST, excluding exhibits unless specifically incorporated herein,
are available without charge upon request to U.S. Trust Corporation, Office of
the Secretary, 114 West 47th Street, New York, New York 10036. Telephone
requests may be directed to Carol Strickland, Secretary of UST, at (212)
852-1330. In order to ensure timely delivery of the documents, any request
should be made no later than March 3, 1995.
The following documents filed with the Commission by UST (File No.
0-8709) are incorporated herein by reference: (a) Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, as amended on Form 10-K/A dated
August 19, 1994, including the portions of the U.S. Trust Corporation 1993
Annual Report incorporated therein ("UST's 1993 Annual Report on Form 10-K");
(b) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1994, June 30, 1994 and September 30, 1994 ("UST's
2
<PAGE>
Quarterly Reports on Form 10-Q") and (c) Current Reports on Form 8-K dated
November 17, 1994, November 18, 1994 and December 23, 1994.
The following documents filed with the Commission by Chase (File No.
1-5945) are incorporated herein by reference: (a) Annual Report on Form 10-K
for the year ended December 31, 1993, including the portions of The Chase
Manhattan Corporation 1993 Annual Report incorporated therein; (b) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1994, June 30,
1994 and September 30, 1994; (c) Current Reports on Form 8-K dated January 18,
1994, January 20, 1994, April 18, 1994, April 29, 1994, May 18, 1994, July 18,
1994, August 3, 1994, August 3, 1994, August 11, 1994, October 18, 1994,
November 18, 1994, December 7, 1994, December 14, 1994, January 17, 1995,
January 17, 1995 and January 26, 1995; (d) pages 1 through 4 and 7 through 19
(excluding the sections entitled "Compensation Committee Report on Executive
Compensation", "Performance Graph", "Approval of Auditors" and "1994 Long-Term
Incentive Plan") of the Proxy Statement dated March 11, 1994; (e) the
description of Chase Common Stock contained in Chase's registration statement
on Form 10 filed April 11, 1969, as amended by amendments thereto on Form 8
filed on June 20, 1969, April 8, 1988, May 17, 1990 and April 19, 1993,
including any amendment or report filed for the purpose of updating such
description prior to the Special Meeting (the "Chase Form 10"); and (f) the
description of the Chase Junior Participating Preferred Stock Purchase Rights
contained in Chase's Form 8-A filed on February 17, 1989, including any
amendment or reports filed for the purpose of updating such description prior
to the Special Meeting (the "Chase Form 8-A").
All documents filed by UST or Chase pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
Special Meeting shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of such filing. Any statement contained herein
or in a document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein or in any other subsequently filed document
which also is, or is deemed to be, incorporated herein by reference modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed to constitute a part hereof, except as so modified or
superseded.
All information contained in this Proxy Statement-Prospectus relating to
UST or Spinco has been supplied by UST, and all information relating to Chase
has been supplied by Chase.
No person is authorized to give any information or to make any
representation on behalf of UST or Chase concerning the matters being
considered at the Special Meeting if not contained in or appended to this
Proxy Statement-Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Proxy
Statement-Prospectus does not constitute an offer to sell, or a solicitation
of an offer to purchase, the securities offered by this Proxy
Statement-Prospectus or the solicitation of a proxy, by any person in any
jurisdiction in which such an offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so
or to any person to whom it is unlawful to make such an offer or solicitation.
Neither delivery of this Proxy Statement-Prospectus nor any distribution of
the securities being offered pursuant to this Proxy Statement-Prospectus
shall, under any circumstances, create an implication that there has been no
change in the affairs of UST or Chase since the date of this Proxy
Statement-Prospectus.
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<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
AVAILABLE INFORMATION............................. 2 RELATIONSHIP WITH CHASE........................... 65
INCORPORATION OF CERTAIN INFORMATION BY Post Closing Covenants Agreement; Tax Allocation
REFERENCE....................................... 2 Transactions.................................. 47
SUMMARY........................................... 5 Agreement..................................... 65
The Companies................................... 5 Services Agreement.............................. 65
The Transactions................................ 6 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........... 66
Certain Regulatory Approvals.................... 10 Consequences of the Distribution................ 66
Interests of Certain Persons in the Consequences of the Merger...................... 67
Transactions.................................. 10 DESCRIPTION OF CAPITAL STOCK OF CHASE............. 68
The Special Meeting............................. 10 Chase Common Stock.............................. 68
Certain Federal Income Tax Consequences......... 11 Chase Preferred Stock........................... 69
Comparison of Certain Rights of Holders of Chase Description of Chase Rights Plan................ 69
Common Stock and UST Common Stock............. 11 COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF CHASE
Relationship with Chase......................... 11 COMMON STOCK AND UST COMMON STOCK............... 70
Special Factors................................. 11 Size and Classification of the Board of
Comparative Per Share Market Information........ 12 Directors..................................... 71
Comparative Per Share Data...................... 13 Stockholder Nominations......................... 71
Selected Historical Financial Information....... 14 Duties of Directors............................. 71
Recent Developments............................. 16 Removal of Directors............................ 71
THE SPECIAL MEETING............................... 23 Newly Created Directorships and Vacancies....... 72
General......................................... 23 Limitation on Directors' Liability.............. 72
Record Date..................................... 23 Indemnification of Directors and Officers....... 73
Vote Required................................... 23 Issuance of Rights or Options to Purchase Shares
Voting and Revocation of Proxies................ 24 to Directors, Officers and Employees.......... 74
Solicitation of Proxies......................... 24 Loans to Directors.............................. 74
Dissenters' Rights.............................. 24 Dividends....................................... 74
THE TRANSACTIONS.................................. 24 Action by Stockholders Through Written
THE COMPANIES..................................... 28 Consent....................................... 74
UST............................................. 28 Special Meetings................................ 75
Chase........................................... 28 Cumulative Voting............................... 75
THE MERGER........................................ 29 Necessary Vote to Effect Merger (Not Involving
Background of the Merger........................ 29 Interested Stockholder)....................... 75
UST's Reasons for the Merger; Recommendation of Business Combinations Involving Interested
the UST Board................................. 31 Stockholders.................................. 75
Opinion of the Financial Advisor to the UST Appraisal Rights; Dissenters' Rights............ 76
Board......................................... 32 Redeemable Shares............................... 77
Chase's Reasons for the Merger.................. 35 Selective Repurchase of Company Stock........... 77
Terms of the Merger............................. 35 Warrants or Options............................. 77
Effective Time; Closing......................... 37 Preemptive Rights............................... 78
Exchange of Certificates in the Merger.......... 37 Amendment of Certificate of Incorporation....... 78
Representations and Warranties.................. 37 Amendment of Bylaws............................. 79
Conduct of Business Prior to the Effective Time; EXPERTS........................................... 79
Certain Covenants............................. 38 VALIDITY OF CHASE SHARES.......................... 79
Certain Regulatory Approvals.................... 42 BENEFICIAL OWNERSHIP.............................. 80
Stock Exchange Listing.......................... 42 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 82
Conditions...................................... 43 OTHER BUSINESS.................................... 82
Termination; Amendment and Waiver............... 46 STOCKHOLDER PROPOSALS............................. 82
Expenses........................................ 47 INDEX OF DEFINED TERMS............................ 83
Accounting Treatment............................ 47 Appendix A Agreement and Plan of Merger
Interests of Certain Persons in the Appendix B Agreement and Plan of Distribution
Resales of Chase Common Stock Issued in the Appendix C Contribution and Assumption Agreement
Merger; Affiliates............................ 50 Appendix D Post Closing Covenants Agreement
Dissenters' Rights.............................. 50 Appendix E Tax Allocation Agreement
THE DISTRIBUTION.................................. 52 Appendix F Opinion of Financial Advisor to the
Background of and Reasons for the UST Board
Distribution.................................. 52 Appendix G Sections 910 and 623 of the New York
Terms of the Contribution Agreement............. 53 Business Corporation Law
Terms of the Distribution Agreement............. 56 Appendix H Information Statement Relating to New
Terms of Post Closing Covenants Agreement....... 58 USTC Holdings Corporation and the
Terms of the Tax Allocation Agreement........... 61 Distribution
EFFECT OF TRANSACTIONS ON UST EMPLOYEES AND UST
BENEFIT PLANS................................... 61
Transfer of Employment.......................... 61
Transfer of Plans............................... 62
Retained Plans.................................. 62
Severance Arrangements.......................... 63
Transition Bonus Program........................ 64
</TABLE>
4
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information included elsewhere in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference. Stockholders are urged to read carefully this Proxy
Statement-Prospectus, including the Appendices hereto and the documents
incorporated herein by reference in their entirety.
All information concerning UST and Spinco included in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference has been furnished by UST, and all information concerning
Chase included in this Proxy Statement-Prospectus, the Appendices hereto and
the documents incorporated herein by reference has been furnished by Chase. An
Index of Defined Terms used herein is included at page 83 of this Proxy
Statement-Prospectus.
The Companies
UST
UST was incorporated in New York in 1977 and became a bank holding
company in 1978. United States Trust Company of New York, a New York bank and
trust company ("USTNY"), UST's principal subsidiary, was created as a trust
company by Special Act of the New York Legislature in 1853. UST, through USTNY
and its other subsidiaries, provides financial services to individuals and
institutions. UST conducts five principal businesses: asset management,
private banking, special fiduciary, corporate trust and securities processing.
The assets and certain liabilities relating to UST's securities processing
business and related back office operations, including certain subsidiaries
conducting such business and operations (collectively, the "Chase Acquired
Business"), will constitute all the businesses, assets and liabilities of UST
at the Effective Time. See "The Distribution". Immediately prior to the time
the Distribution is effected (the "Time of Distribution"), all of UST's other
businesses, assets and liabilities (collectively, the "Core Businesses"),
which include UST's asset management, private banking, special fiduciary,
corporate trust and other non-processing businesses, will be transferred to
Spinco. At September 30, 1994, UST and its consolidated subsidiaries had total
assets of approximately $4.0 billion, total deposits of approximately $2.4
billion and shareholders' equity of approximately $239.6 million. For the nine
months ended September 30, 1994, the Chase Acquired Business accounted for
approximately $113.9 million, or 37%, of UST's consolidated revenues.
UST's principal executive office is located at 114 West 47th Street, New
York, New York 10036 and its telephone number at such office is (212)
852-1000.
Chase
Chase is a bank holding company that was incorporated in Delaware in 1969
and whose principal subsidiary is The Chase Manhattan Bank (National
Association), a national banking association ("CMB"). In addition to CMB,
Chase holds investments in other subsidiaries that provide a variety of
financial services, including commercial and consumer financing, investment
banking, securities trading and investment advisory services. Chase's primary
strategy is that of a global bank with a diversified domestic base serving
three interrelated franchises: global financial services, domestic consumer
products and regional banking in the northeastern United States. Over the last
few years, Chase has focused its business and marketing efforts on two types
of customers -- retail (individuals and small and medium-sized businesses) and
wholesale (primarily large corporations and institutions). At September 30,
1994, Chase and its consolidated subsidiaries had total assets of
approximately $117.1 billion, total deposits of approximately $68.9 billion
and shareholders' equity of approximately $8.4 billion.
Chase's principal executive office is located at 1 Chase Manhattan Plaza,
New York, New York 10081 and its telephone number at such office is (212)
552-2222.
Additional Information
To obtain additional information regarding the businesses of UST and
Chase, see "Available Information", "Incorporation of Certain Information by
Reference" and "The Companies". For information regarding Spinco, see the
Information Statement attached as Appendix H hereto.
5
<PAGE>
The Transactions
Pursuant to the transactions described in this Proxy
Statement-Prospectus, Chase will acquire the Chase Acquired Business. The
Chase Acquired Business consists of UST's securities processing business and
related back office operations, including the assets and certain of the
liabilities related thereto. UST's securities processing business (the
"Processing Business") consists of the businesses, assets and certain
liabilities related to (i) the unit investment trust business of USTNY and its
affiliates, which includes, among other things, acting as trustee for "unit
investment trusts" (as such term is defined in the Investment Company Act of
1940, as amended), maintaining custody of securities and investments for unit
trusts and providing other processing support to unit trusts, (ii) the mutual
funds services business of UST and its subsidiaries, which includes, among
other things, providing domestic and global custody, transfer agency and other
administrative services to registered investment companies and (iii) the
institutional asset services business of USTNY and its affiliates, which
includes, among other things, master trust and custody services, securities
lending services, rabbi trust services and certain money management services.
UST's related back office operations (the "Related Back Office") consists of
the businesses, assets and certain liabilities related to USTNY's Computer
Services Division and Securities Services and Trust Operations Division.
The proposals to be submitted to UST stockholders at the Special Meeting
relate to the sale by UST to Chase of the Processing Business and the Related
Back Office (which together constitute the Chase Acquired Business). Such sale
will be effected pursuant to the Merger, whereby UST will be merged with and
into Chase, and UST stockholders will receive shares of Chase Common Stock in
exchange for their shares of UST Common Stock. Immediately prior to the
Merger, the Core Businesses will be transferred to Spinco and subsidiaries of
Spinco, and all the then outstanding shares of Spinco will be distributed to
the then current UST stockholders in the Distribution on the basis of one
share of Spinco common stock, par value $1.00 per share ("Spinco Common
Stock"), for each share of UST Common Stock. See "The Distribution". At the
Time of Distribution, Spinco will assume the name "U.S. Trust Corporation" and
its principal subsidiary, New U.S. Trust Company of New York, a recently
organized entity that at the Time of Distribution will be a New York bank and
trust company ("New Trustco"), will assume the name "United States Trust
Company of New York". Accordingly, UST stockholders immediately prior to the
Merger will retain their equity interests in the Core Businesses in the form
of stock in Spinco, which will acquire the Core Businesses prior to the
Distribution.
The Merger
General. If the Merger Agreement is authorized and adopted by the UST
stockholders and the other conditions to the Merger are satisfied or waived,
at the Effective Time UST (which will then hold only the Chase Acquired
Business) will be merged with and into Chase, with Chase as the Surviving
Corporation, and the separate corporate existence of UST will cease.
Pursuant to the Merger Agreement, at the Effective Time each issued and
outstanding share of UST Common Stock (other than any shares of UST Common
Stock owned by Chase or any wholly owned subsidiary of Chase or UST (other
than in a fiduciary, custodial or similar capacity) and any shares of UST
Common Stock owned by Dissenting Holders (as defined under "The
Merger -- Dissenters' Rights" below)) will be converted into the right to
receive the number (rounded to the nearest one-thousandth) (the "Conversion
Number") of fully paid and nonassessable shares of Chase Common Stock equal to
(a) $363,500,000, divided by (b) the product of (i) the greater of (A) the
Average Value of Chase Common Stock or (B) $31.00, multiplied by (ii) the
number of shares of UST Common Stock outstanding immediately prior to the
Effective Time. The term "Average Value of Chase Common Stock" means the
amount representing the 10-day average of the daily average of the high and
low sale prices for Chase Common Stock reported on the New York Stock Exchange
Composite Transaction Tape (the "NYSE Tape"), as reprinted in The Wall Street
Journal, Eastern Edition, on each of the 10 trading days immediately preceding
the last business day before the Closing Date. If the Average Value of Chase
Common Stock is $31.00 or less per share, then an aggregate of 11,725,806
shares of Chase Common Stock will be issued in the Merger. Moreover, if the
market value of Chase Common Stock on the Closing Date is less than the
greater of the Average Value of Chase Common Stock and $31.00, as applicable,
then the value on the Closing Date of the aggregate consideration received by
UST stockholders in the Merger will be less than $363,500,000. The
6
<PAGE>
number of shares of Chase Common Stock to be issued in the Merger will be
determined as of the Closing Date, which date will be after the date of the
Special Meeting.
For example, if the Average Value of Chase Common Stock were $34.375, the
Conversion Number (assuming 9,622,000 shares of UST Common Stock were
outstanding immediately prior to the Effective Time) would be 1.099 shares of
Chase Common Stock per share of UST Common Stock. If the Average Value of
Chase Common Stock were $31.00 or less, the Conversion Number (assuming
9,622,000 shares of UST Common Stock were outstanding immediately prior to the
Effective Time) would be 1.219 shares of Chase Common Stock per share of UST
Common Stock.
So long as the Average Value of Chase Common Stock is equal to or greater
than $31.00, if the market value of Chase Common Stock on the Closing Date is
equal to such Average Value of Chase Common Stock, the value received by UST
stockholders in the Merger will be $37.78 per share of UST Common Stock
(assuming 9,622,000 shares of UST Common Stock are outstanding immediately
prior to the Effective Time). If the Average Value of Chase Common Stock is
less than $31.00, UST stockholders will receive 1.219 shares of Chase Common
Stock per share of UST Common Stock. The actual value on the Closing Date of
the Chase Common Stock received by UST stockholders will be equal to (i) the
number of shares of Chase Common Stock issued in the Merger multiplied by (ii)
the market value of Chase Common Stock on the Closing Date.
Under the terms of the Merger Agreement, UST does not have the right to
decline to consummate the Merger solely because the Average Value of Chase
Common Stock or the market value of Chase Common Stock immediately prior to
the Effective Time is substantially less than $31.00. Therefore, if the Merger
is authorized and all other conditions to the Merger are satisfied or waived
on or prior to the Effective Time, UST stockholders will assume the risk of a
decline in Chase Common Stock below $31.00 per share from and after the date
of the Special Meeting. See "The Merger -- Conditions -- Conditions of
Obligations of UST".
As of the Record Date (as defined below), 9,489,309 shares of UST Common
Stock were outstanding. The number of shares of UST Common Stock outstanding
at the Effective Time is subject to change as a result of the exercise of
stock options and the issuance of shares of UST Common Stock, if any, in
connection with any acquisition completed by UST prior to the Closing Date.
UST has no present plan to make any acquisitions in which UST Common Stock
would be issued. See "The Merger -- Conduct of Business Prior to the Effective
Time". Neither UST nor Chase intends to acquire any shares of UST Common Stock
prior to the Effective Time.
Fractional Shares. No fractional shares of Chase Common Stock will be
issued in the Merger. The Merger Agreement provides that each UST stockholder
who otherwise would have been entitled to receive a fractional share of Chase
Common Stock will be entitled to receive, in lieu thereof, an amount in cash
equal to such fraction multiplied by the average of the high and low sale
prices for Chase Common Stock on the business day immediately preceding the
Closing Date, as reported on the NYSE Tape.
Effective Time. The Merger will become effective and the Effective Time
will occur upon the filing of a certificate of merger by the Department of
State of New York and with the Secretary of State of Delaware, or at such time
thereafter as is provided in such certificate of merger. See "The
Merger -- Effective Time; Closing".
Distribution of Merger Consideration; Exchange of Share Certificates. At
or immediately after the Closing Date, Chase will send each UST stockholder a
letter (a "Letter of Instruction") notifying them of the consummation of the
Merger and setting forth instructions for the surrender of certificates that
before the Effective Time represented UST Common Stock. Promptly after receipt
by Chase's exchange agent of certificates surrendered in accordance with the
instructions set forth in the Letter of Instruction, the exchange agent will
distribute to the UST stockholder entitled thereto the certificates
representing shares of Chase Common Stock and a check in lieu of fractional
shares into which the UST Common Stock represented by the surrendered
certificate were converted in the Merger. UST STOCKHOLDERS ARE REQUESTED NOT
TO SURRENDER THEIR CERTIFICATES REPRESENTING OUTSTANDING SHARES OF UST COMMON
STOCK FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF INSTRUCTION FROM CHASE. See
"The Merger -- Exchange of Certificates in the Merger".
7
<PAGE>
Stock Exchange Listing. Chase has agreed in the Merger Agreement to use
its best efforts to cause the shares of Chase Common Stock issued in the
Merger to be approved for listing on the New York Stock Exchange (the "NYSE"),
subject to official notice of issuance, prior to the Effective Time. Such
approval for listing is a condition to each of UST's and Chase's obligation to
consummate the Merger. See "The Merger -- Stock Exchange Listing" and
"-- Conditions -- Conditions to Each Party's Obligation to Effect the Merger".
Conditions. The Merger Agreement provides that the respective
obligations of the parties to effect the Merger are subject to certain
conditions, including the approval of each of the Merger and the Distribution
by UST stockholders, consummation of the Distribution, receipt of certain
regulatory approvals and receipt of a private letter ruling (the "Private
Letter Ruling") from the Internal Revenue Service (the "Service") with respect
to the tax-free nature of the transactions involved in the Distribution. The
Merger Agreement provides that the obligation of each of Chase and UST to
effect the Merger is conditioned upon the absence, since September 30, 1994,
of certain material adverse changes. In the case of Chase, such obligation is
conditioned upon the absence of any material adverse change to the business,
properties, assets, results of operation or financial condition of MF Service
Company or the Chase Acquired Business, each taken as a whole, and in the case
of UST, such obligation is conditioned upon the absence of any such change in
Chase and its subsidiaries taken as a whole. Adverse changes resulting from
general economic or market conditions do not constitute a material adverse
change. Therefore, a general decline in financial markets resulting in a
substantial decline in the market value of Chase Common Stock would not, in
and of itself, constitute a material adverse change. The determination of
whether a material adverse change has occurred, or is the result of general
economic or market conditions or otherwise, is dependent upon specific facts
and circumstances. The Merger Agreement does not provide that UST can decline
to consummate the Merger solely because the Average Value of Chase Common
Stock or the market value of Chase Common Stock immediately prior to the
Effective Time is substantially less than $31.00. See "The
Merger -- Conditions".
Termination; Termination Payment. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether before or after authorization
of the Merger and the Merger Agreement by UST stockholders: (a) by mutual
written consent of Chase and UST or (b) by either Chase or UST (i) if, upon a
vote at a duly held UST stockholders' meeting or any adjournment thereof, any
required approval of UST stockholders is not obtained, (ii) if the Merger has
not been consummated on or before November 18, 1995, unless the failure to
consummate the Merger is the result of a wilful and material breach of such
agreement by the party seeking to terminate the Merger Agreement; provided,
however, that the passage of such period will be tolled for any part thereof
(but in no event for more than an additional 90 days) during which any party
is subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of the UST stockholders' meeting, or (iii) if any
governmental entity has issued an order, decree or filing or taken any other
action permanently enjoining, restraining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final and
nonappealable. See "The Merger -- Termination; Amendment and Waiver".
The Merger Agreement provides that after the date of this Proxy
Statement-Prospectus, upon termination of the Merger Agreement for any reason
other than by reason of the failure to satisfy certain conditions set forth
therein or due to a permanent injunction issued at the instance of the United
States Department of Justice, or otherwise due to any default on the part of
Chase or the failure of Chase to obtain all requisite approvals, UST will pay
to Chase, as liquidated damages, and not a penalty, the sum of $7.5 million.
Such $7.5 million termination payment will be payable in the event the UST
stockholders fail to approve the Distribution or to authorize and adopt the
Merger Agreement.
Recommendation of the UST Board. The UST Board has determined the Merger
to be fair to and in the best interests of UST and its stockholders. The UST
Board has approved the Distribution and the Merger Agreement and recommends
the approval of the Distribution and the authorization and adoption of the
Merger Agreement by UST stockholders.
The conclusion of the UST Board with respect to the Merger is based upon
a number of factors. See "The Merger -- Background of the Merger", "-- UST's
Reasons for the Merger; Recommendation of the UST Board" and "-- Opinion of
the Financial Advisor to the UST Board".
8
<PAGE>
Opinion of the Financial Advisor to the UST Board. CS First Boston
Corporation ("CS First Boston"), UST's financial advisor, has delivered to the
UST Board its written opinions that, as of November 17, 1994, and as of the
date of this Proxy Statement-Prospectus, the consideration to be received by
UST stockholders in connection with the Merger is fair to such stockholders
from a financial point of view. The full text of the CS First Boston opinion
dated the date hereof, which is substantially identical to the opinion
delivered to the UST Board on November 17, 1994, and sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Appendix F to this Proxy Statement-Prospectus. UST stockholders
are urged to read the CS First Boston opinion in its entirety. UST has agreed
to pay CS First Boston a fee in connection with its services, the amount of
which is contingent upon the consummation of the Merger. See "The
Merger -- Opinion of the Financial Advisor to the UST Board".
Dissenters' Rights. Each holder of UST Common Stock who files a written
objection to the Merger with UST prior to the stockholder vote on the Merger
Proposal, and who does not vote in favor of the Merger, is entitled to the
rights and remedies of dissenting stockholders upon complying with the
procedures set forth in Sections 910 and 623 of the New York Business
Corporation Law (the "NYBCL"), a copy of each of which is attached as Appendix
G hereto. Returning a signed proxy without indicating any voting instructions
will result in such proxy being voted for the Distribution Proposal and the
Merger Proposal and, as a result, cause such UST stockholder to lose his or
her right to dissent. See "The Merger -- Dissenters' Rights" and Appendix G to
this Proxy Statement-Prospectus. The receipt of cash by a dissenting
stockholder will be a taxable event for Federal income tax purposes.
Chase will not be obligated to proceed with the Merger if, as of the date
on which the Effective Time would otherwise occur, more than 5% of the
outstanding shares of UST are held by UST stockholders who have perfected,
under New York law, their right to dissent to the Merger. Chase stockholders
in their capacity as such are not entitled to dissenter's rights in connection
with the Merger.
Accounting Treatment. The Merger will be accounted for by Chase as a
"purchase" for financial accounting purposes in accordance with generally
accepted accounting principles, whereby the purchase price will be allocated
based on the fair values of assets acquired and liabilities assumed. Such
allocations will be made based upon valuations and other studies that have not
been finalized. The excess of the purchase price over the amounts so allocated
will be allocated to goodwill. See "The Merger -- Accounting Treatment".
The Distribution
The Contribution and Assumption Agreement to be entered into between
USTNY and New Trustco prior to the Time of Distribution, the form of which is
attached as Appendix C to this Proxy Statement-Prospectus and is incorporated
herein by reference (as it may be amended, supplemented or otherwise modified
from time to time, the "Contribution Agreement"), together with the
Distribution Agreement, provides for a series of asset and stock transfers and
liability assumptions between and among UST, Spinco and certain of UST's
subsidiaries prior to the Distribution (the "Internal Reorganization"). The
purpose and effect of the Internal Reorganization is to separate the Core
Businesses, which are not being acquired by Chase in the Merger, from the
Chase Acquired Business and to transfer the Core Businesses to Spinco prior to
the Time of Distribution. Accordingly, the Chase Acquired Business will
constitute all the businesses, assets and liabilities of UST at the Effective
Time. See "The Distribution". UST's stockholders are being asked to vote on
the Distribution and the Merger only, and are not being asked to vote on the
Internal Reorganization. In the event the UST stockholders do not approve the
Distribution and authorize the Merger, or the Merger Agreement is otherwise
terminated, UST nonetheless intends, subject to regulatory and other
approvals, to effect the Internal Reorganization. See "The
Distribution -- Background of the Distribution".
The Distribution Agreement provides that prior to the Time of
Distribution, UST will cause Spinco to amend its certificate of incorporation
to, among other things, authorize 40,000,000 shares of Spinco Common Stock.
See "The Distribution".
The Distribution will be effected by the distribution to each holder of
record of UST Common Stock, as of the close of the stock transfer books on the
record date for the Distribution (the "Distribution Record Date"), of
certificates representing one share of Spinco Common Stock with respect to
each share of UST Common Stock held by such holder. See "The
Distribution -- Terms of the Distribution Agreement".
9
<PAGE>
Certain Regulatory Approvals
The regulatory approvals and consents necessary to consummate the Merger,
the Distribution and certain related transactions include the approval of the
Board of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation
("FDIC"), the Office of Thrift Supervision and the New York State Banking
Board. Each of Chase, UST and Spinco expect to file applications with the
applicable regulatory authorities during February 1995. There can be no
assurance that the requisite regulatory approvals will be obtained at all or
in a timely manner to permit consummation of the Merger. The Merger Agreement
may be terminated by UST or Chase if all requisite regulatory approvals have
not been obtained, and all applicable waiting periods have not expired, by
November 18, 1995. There can also be no assurance that any such approvals will
not contain a condition or requirement which causes such approvals to fail to
satisfy the conditions set forth in the Merger Agreement. There can likewise
be no assurance that other regulatory bodies will not challenge the Merger or,
if such a challenge is made, as to the result thereof. See "The
Merger -- Certain Regulatory Approvals" and "-- Conditions".
Interests of Certain Persons in the Transactions
In considering the recommendation of the UST Board, UST stockholders
should be aware that certain members of UST's management and the UST Board
have certain interests in the Merger and the Distribution that are in addition
to the interests of UST stockholders generally. These interests include
certain payments to be received in respect of UST stock options granted prior
to the date of the Merger Agreement. See "The Merger -- Interests of Certain
Persons in the Transactions" and "Effect of Transactions on UST Employees and
UST Benefit Plans". See also "Management -- Treatment of UST Options" in the
Information Statement attached as Appendix H hereto.
The Special Meeting
Time, Place and Date
The Special Meeting will be held at the offices of United States Trust
Company of New York, 114 West 47th Street, New York, New York, in the
Auditorium on the first floor, on March 22, 1995, at 10:00 A.M., local time.
Purpose of Special Meeting
At the Special Meeting, holders of shares of UST Common Stock at the
close of business on the Record Date (as defined below) will be asked (i) to
consider and vote upon the Distribution Proposal, (ii) to consider and vote
upon the Merger Proposal and (iii) to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof.
Record Date; Stockholders Entitled to Vote; Vote Required
The UST Board has fixed the close of business on February 1, 1995, as the
record date (the "Record Date") for the determination of the holders of UST
Common Stock entitled to receive notice of and to vote at the Special Meeting
and at any adjournments or postponements thereof.
As of the Record Date, directors and executive officers of UST owned
beneficially an aggregate of 792,431 shares of UST Common Stock (including
shares issuable upon the exercise of stock options which are currently
exercisable or which become exercisable within 60 days), or approximately
7.93% of the shares of UST Common Stock outstanding on such date. See "The
Special Meeting -- Vote Required".
As of the Record Date, 9,489,309 shares of UST Common Stock were
outstanding. Each share of UST Common Stock outstanding on the Record Date
will be entitled to one vote upon each matter properly submitted at the
Special Meeting. Approval of the Distribution and the authorization and
adoption of the Merger Agreement require, in each case, the affirmative vote
of two-thirds (or 66 2/3%) of the total number of shares entitled to be voted
at the Special Meeting.
It is a condition to consummation of the Distribution that the Merger
Agreement have been authorized and adopted by the UST stockholders, and it is
a condition to consummation of the Merger that the Distribution have been
approved by the UST stockholders.
10
<PAGE>
Certain Federal Income Tax Consequences
UST has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Distribution will
qualify as a tax-free spin-off to UST and its stockholders under Section 355
of the Internal Revenue Code of 1986, as amended (the "Code"), and that
certain asset transfers involved in the Internal Reorganization will not be
taxable transactions. Receipt of the Private Letter Ruling with respect to the
matters described above is a condition to the respective obligations of UST
and Chase to consummate the Merger. It is expected that the Merger will
qualify as a tax-free transaction to UST and its stockholders. Receipt of
opinions of counsel to that effect is a condition to the respective
obligations of UST and Chase to consummate the Merger. See "The
Merger -- Conditions" and "Certain Federal Income Tax Consequences".
Comparison of Certain Rights of Holders of Chase Common Stock and UST Common
Stock
See "Comparison of Certain Rights of Holders of Chase Common Stock and
UST Common Stock" for a summary of certain significant differences between the
rights of holders of Chase Common Stock and UST Common Stock.
Relationship with Chase
In connection with the Distribution, Chase, UST, USTNY, Spinco and New
Trustco will enter into the Post Closing Covenants Agreement, the form of
which is attached as Appendix C to this Proxy Statement-Prospectus and is
incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Post Closing Covenants Agreement").
In the Post Closing Covenants Agreement, Chase, UST and USTNY, on the one
hand, and Spinco and New Trustco, on the other hand, will agree to certain
indemnification provisions arising primarily from the conduct of the Chase
Acquired Business. Spinco also will agree to abide by certain noncompetition
provisions relating to competing with Chase in the securities processing
business. In addition, at the Time of Distribution, New Trustco will enter
into a services agreement (the "Services Agreement") pursuant to which, after
the Distribution, CMB will furnish necessary securities processing, custodial
and other services to New Trustco and its affiliates. See "The Merger -- Terms
of the Post Closing Covenants Agreement" and "Relationship with Chase".
Special Factors
After the Merger, holders of UST Common Stock immediately prior to the
Effective Time will hold all of the outstanding capital stock of Spinco and up
to 11,725,806 shares of Chase Common Stock, which will have been acquired in
respect of their former shares of UST Common Stock. Through their holdings of
Spinco Common Stock, the former stockholders of UST will retain their equity
interests in the Core Businesses.
As described above, Chase is a diversified global bank holding company
with global exposure to a wide variety of business including, in addition to
traditional domestic private banking, asset management and corporate trust
services of the kinds provided by UST, commercial and consumer finance,
investment banking, trading and securities processing services. The business
of Chase is substantially different than the business of UST.
In considering whether to approve the Distribution and whether to
authorize and adopt the Merger Agreement, UST stockholders should carefully
evaluate certain factors relating to Spinco. For a discussion of certain
factors relating to Spinco, see "Special Factors" in the Information Statement
attached as Appendix H hereto. UST stockholders are urged to read the
Information Statement in its entirety.
11
<PAGE>
Comparative Per Share Market Information
UST Common Stock is quoted on the NASDAQ National Market System under the
symbol "USTC". The table below sets forth, for the fiscal periods indicated,
the high and low sales prices per share of UST Common Stock on the NASDAQ
National Market System as reported in published financial sources and the
dividends per share declared on UST Common Stock. Chase Common Stock is listed
and principally traded on the NYSE under the symbol "CMB". The table below
sets forth, for the fiscal periods indicated, the high and low sale prices per
share of Chase Common Stock in NYSE Composite Transactions as reported in
published financial sources and the dividends per share declared on Chase
Common Stock. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
<TABLE>
UST Chase
--------------------------------- ---------------------------------
High Low Dividends High Low Dividends
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1992
First Quarter............. $45.750 $42.250 $ .43 $25.250 $17.250 $ .30
Second Quarter............ 50.000 42.750 .43 30.375 20.375 .30
Third Quarter............. 50.875 46.000 .43 29.625 21.625 .30
Fourth Quarter............ 49.750 45.500 .43 30.000 20.750 .30
Fiscal 1993
First Quarter............. $59.000 $49.250 $ .47 $35.625 $27.375 $ .30
Second Quarter............ 59.750 50.250 .47 38.000 28.375 .30
Third Quarter............. 55.500 51.250 .47 37.875 31.375 .30
Fourth Quarter............ 55.000 52.000 .47 38.000 31.125 .30
Fiscal 1994
First Quarter............. $53.250 $49.500 $ .50 $36.625 $30.375 $ .33
Second Quarter............ 53.250 49.750 .50 40.000 31.250 .33
Third Quarter............. 53.000 50.500 .50 38.875 34.625 .40
Fourth Quarter............ 66.000 52.000 .50 37.000 33.500 .40
Fiscal 1995
First Quarter (through
February 8, 1995)...... $67.125 $63.500 $ .50 $35.000 $32.875 $ .40
</TABLE>
The closing price for UST Common Stock on October 21, 1994, the last full
trading day prior to UST's announcement that it was in negotiations to sell
its securities processing business, was $52.375. The closing price for UST
Common Stock and Chase Common Stock on November 17, 1994, the last full
trading day prior to announcement of the execution of the Merger Agreement,
was $65.125 and $36.000, respectively. The closing price for UST Common Stock
and Chase Common Stock on February 8, 1995, the most recent trading date
available prior to printing this Proxy Statement-Prospectus, was $66.500 and
$34.875, respectively. For current price information, UST stockholders are
urged to consult publicly available sources.
Holders of Chase Common Stock are entitled to receive dividends when, as
and if declared by Chase's Board of Directors (the "Chase Board") out of funds
legally available therefor. The timing and amount of any future dividends will
depend on circumstances existing at the time, including earnings, cash
requirements, applicable federal and state laws and regulations and policies
and other factors deemed relevant by the Chase Board, including the amount of
dividends payable to Chase by its subsidiary banks. The payment of dividends
to Chase by its subsidiary banks is subject to various state and federal
limitations. See "The Companies -- Chase".
12
<PAGE>
Comparative Per Share Data
The following table sets forth for Chase Common Stock and UST Common
Stock certain per share historical financial information, for UST certain per
share equivalent pro forma financial information and for Spinco certain per
share pro forma financial information as of and for the nine months ended
September 30, 1994 and for the year ended December 31, 1993. Chase and UST pro
forma combined comparative per share data giving effect to the Merger is not
considered to be material to the consolidated financial statements of Chase
and, accordingly, has not been included below. The UST per share equivalent
pro forma financial information is derived from the summary historical
financial information of Chase and is based upon a Conversion Number of 1.083
shares of Chase Common Stock for each share of UST Common Stock. The
Conversion Number is based on the maximum value of the Chase Common Stock
payable in consideration of the Chase Acquired Business under the terms of the
Merger Agreement ($363,500,000) and the assumption that (i) the number of
shares of UST Common Stock outstanding on the Effective Date will be equal to
the number of such shares outstanding at September 30, 1994 after giving
effect to the exercise of options to purchase approximately 236,000 shares of
UST Common Stock (9,622,000) and (ii) the Average Value of Chase Common Stock
on the Effective Date will be equal to the market value of Chase Common Stock
on February 8, 1995 ($34.875).
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of UST and Chase included in the documents described under
"Incorporation of Certain Information by Reference" and the pro forma
condensed financial information and accompanying notes of Spinco set forth
under "Pro Forma Condensed Financial Statements" herein and included in the
Information Statement attached as Appendix H hereto.
<TABLE>
Equivalent
Chase UST Pro Forma Spinco
Historical Historical UST Share Pro Forma
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Per Common Share Data
Year ended December 31, 1993
Earnings before cumulative effect of change
in accounting principle(a)........................ $ 1.89 N/A $2.05 N/A
Earnings............................................. 4.79 4.25 5.19 2.22
Dividends............................................ 1.20 1.88 1.30 (c)
Nine months ended September 30, 1994
Net Income........................................... 4.76 3.68 5.16 2.15
Dividends............................................ 1.06 1.50 1.15 (c)
As of September 30, 1994
Book value........................................... 38.83 25.53(b) 42.05 17.16(b)
- ---------------
(a) Relates to the adoption of Statement of Financial Accounting Standard No.
109 ("SFAS 109"). Chase adopted SFAS 109 as of January 1, 1993; UST
adopted SFAS 109 as of January 1, 1992 and, accordingly, the adoption had
no impact on UST financial results for the year ended December 31, 1993.
(b) Book value per share for UST Historical is based upon 9,386,000 shares of
UST Common Stock outstanding. Book value per share for Spinco Pro Forma
is based upon 9,622,000 shares of Spinco Common Stock outstanding.
(c) Spinco, as a newly formed corporation, has no history of paying dividends.
It is anticipated that Spinco will initially pay dividends at an annual
rate of approximately $1.00 per share. See "Special Factors -- Dividends
and Dividend Policy" in the Information Statement attached as Appendix H
hereto.
</TABLE>
13
<PAGE>
Selected Historical Financial Information
UST
The selected historical consolidated financial data of UST set forth in
the table below has been derived from the audited financial statements of UST
for each of the five fiscal years through the period ended December 31, 1993
and the unaudited financial statements of UST for the nine-month periods ended
September 30, 1994 and 1993. The selected historical consolidated financial
data set forth below should be read in conjunction with the historical
consolidated financial statements and the notes thereto contained in UST's
1993 Annual Report on Form 10-K, and UST's Quarterly Report on Form 10-Q for
the nine months ended September 30, 1994, which are incorporated by reference
herein. The results of operations for the nine-month period ended September
30, 1994 are not necessarily indicative of the results to be expected for the
full year 1994. See "Incorporation of Certain Information by Reference",
"Available Information" and "-- Recent Developments". For pro forma financial
statements for UST giving effect to the Distribution, see "Pro Forma Condensed
Financial Statements" in the Information Statement attached as Appendix H
hereto. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Information Statement attached as Appendix H
hereto.
<TABLE>
(unaudited)
Nine Months
ended
September 30, Year ended December 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Millions, Except Per Share Amounts)
Consolidated Condensed Statement of Income:
Fiduciary and Other Fees..................... $ 220.0 $ 193.7 $ 264.1 $ 235.8 $ 204.9 $ 184.2 $ 177.8
Net Interest Income.......................... 82.4 88.6 116.2 108.9 96.1 89.4 83.3
Provision for Credit Losses.................. (1.5) (3.5) (4.0) (6.0) (6.0) (8.4) (1.6)
Other Income................................. 9.7 6.5 11.9 9.7 8.7 13.0 16.6
-------- -------- -------- -------- -------- -------- --------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses.... 310.6 285.3 388.2 348.4 303.7 278.2 276.1
Total Operating Expenses..................... 247.6 227.8 315.5 289.5 254.9 259.7 232.9
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Income Tax
Expense and Cumulative Effect of Accounting
Changes.................................... 63.0 57.5 72.7 58.9 48.8 18.5 43.2
Income Tax Expense........................... 26.5 24.4 30.4 22.4 17.4 6.8 12.5
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Cumulative
Effect of Accounting Changes............... 36.5 33.1 42.3 36.5 31.4 11.7 30.7
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes...................................... -- -- -- (7.8) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................... $ 36.5 $ 33.1 $ 42.3 $ 28.8 $ 31.4 $ 11.7 $ 30.7
-------- -------- -------- -------- -------- -------- --------
Per Common Share:
Primary:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.69 $ 3.35 $ 4.26 $ 3.76 $ 3.32 $ 1.24 $ 3.08
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.69 $ 3.35 $ 4.26 $ 2.96 $ 3.32 $ 1.24 $ 3.08
-------- -------- -------- -------- -------- -------- --------
Fully Diluted:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.68 $ 3.34 $ 4.25 $ 3.74 $ 3.27 $ 1.23 $ 3.07
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.68 $ 3.34 $ 4.25 $ 2.94 $ 3.27 $ 1.23 $ 3.07
-------- -------- -------- -------- -------- -------- --------
Cash Dividends Declared Per Share............ $ 1.50 $ 1.41 $ 1.88 $ 1.72 $ 1.60 $ 1.60 $ 1.52
Consolidated Condensed Selected Statement of
Condition Balances at Period-End:
Total Assets............................... $ 4,019 $ 3,690 $ 3,186 $ 2,951 $ 2,917 $ 2,778 $ 2,526
Total Deposits............................. 2,383 2,554 2,487 2,355 2,108 2,040 1,987
Long-Term Debt............................. 63 67 65 65 69 71 75
Stockholders' Equity....................... 240 217 229 197 182 166 177
Earnings Ratios (unaudited):
Return on Average Total Assets............. 1.21% 1.16% 1.11% 0.83% 1.09% 0.46% 1.26%
Return on Average Stockholders' Equity..... 21.48% 21.67% 20.47% 15.28% 18.05% 6.75% 17.29%
Capital Ratios (unaudited):
As a Percentage of Risk-Adjusted Period End
Total Assets:
Tier 1 Capital............................. 14.19% 13.23% 14.08% 13.71% 10.81% 9.90% 9.99%
Total Capital.............................. 15.51% 14.71% 15.47% 15.16% 12.03% 11.22% 11.26%
Tier 1 Leverage.............................. 5.70% 5.11% 5.60% 5.78% 6.68% 6.72% 7.60%
- ---------------
*Columns may not total due to roundings.
</TABLE>
14
<PAGE>
Chase
The selected historical consolidated financial data of Chase set forth in
the table below has been derived from the audited financial statements of
Chase for each of the five fiscal years through the period ended December 31,
1993 and the unaudited financial statements of Chase for the nine-month
periods ended September 30, 1994 and 1993. The selected historical
consolidated financial data set forth below should be read in conjunction with
the historical consolidated financial statements and the notes thereto
contained in Chase's Annual Report on Form 10-K for the year ended December
31, 1993 and Chase's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1994, which are incorporated by reference herein. Certain
amounts in prior periods have been reclassified to conform to current
presentation. In Chase's opinion, all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of the financial
position and results of operations for such nine-month periods have been made.
The results of operations for the nine-month period ended September 30, 1994
are not necessarily indicative of the results to be expected for the full year
1994. See "Incorporation of Certain Information by Reference", "Available
Information" and "-- Recent Developments". Pro forma financial statements for
Chase giving effect to the Merger are not included in this Proxy
Statement-Prospectus because the Merger will not have a material effect on
Chase.
<TABLE>
(unaudited)
Nine Months
Ended September 30,
Year Ended December 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(Dollars in Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Condensed Statement of
Income:
Interest Revenue....................... $ 6,187 $ 6,314 $ 8,468 $ 8,705 $ 9,638 $ 11,572 $ 11,959
Interest Expense....................... 3,402 3,453 4,605 5,141 6,293 8,384 8,934
-------- -------- -------- -------- -------- -------- --------
Net Interest Revenue................... 2,785 2,861 3,863 3,564 3,345 3,188 3,025
Provision for Possible Credit Losses... 410 800 995 1,220 1,085 1,300 1,737
Provision for Loans Held for
Accelerated Disposition............... -- 566 566 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Interest Revenue After Provisions
for Possible Credit Losses and Loans
Held for Accelerated Disposition...... 2,375 1,495 2,302 2,344 2,260 1,888 1,288
Other Operating Revenue................ 2,381 2,072 2,949 2,349 2,167 2,075 1,931
Other Operating Expenses............... 3,197 3,321 4,520 3,868 3,783 4,094 3,688
-------- -------- -------- -------- -------- -------- --------
Income Before Taxes and Cumulative
Effect of Change in Accounting
Principle............................. 1,559 246 731 825 644 (131) (469)
Net Income............................. 976 653 966 639 520 (334) (665)
Per Common Share:
Primary Earnings (Loss)................ $ 4.76 $ 3.23 $ 4.79 $ 3.46 $ 3.12 $ (3.31) $ (7.94)
Cash Dividends Declared................ 1.06 0.90 1.20 1.20 1.20 2.16 2.36
Consolidated Condensed Statement of
Condition Balances at Period-End:
Total Assets........................... $117,065 $100,595 $102,103 $ 95,862 $ 98,197 $ 98,064 $107,369
Total Deposits......................... 68,922 70,229 71,509 67,224 71,517 70,713 69,073
Intermediate and Long-Term Debt........ 5,031 6,230 5,641 6,913 6,612 6,527 5,718
Redeemable Preferred Stock............. -- -- -- 53 53 53 54
Nonredeemable Preferred Stock.......... 1,400 1,399 1,399 1,477 1,042 842 842
Common Stockholders' Equity............ 7,040 6,220 6,723 5,034 4,282 3,890 4,102
Total Stockholders' Equity............. 8,440 7,619 8,122 6,511 5,324 4,732 4,944
Earnings Ratios (unaudited):
Return on Average Total Assets......... 1.11% 0.86% 0.94% 0.64% 0.52% (0.31%) (0.65%)
Return on Average Common Stockholders'
Equity................................ 17.34% 13.31% 14.59% 11.14% 10.49% (10.03%) (18.11%)
Capital Ratios (unaudited):
As a Percentage of Risk-Adjusted Period
End Total Assets:
Tier 1 Capital....................... 8.51% 7.94% 8.44% 6.76% 5.32% 4.32% 4.44%
Total Capital........................ 13.22% 12.63% 13.22% 11.12% 9.74% 8.33% 8.87%
Tier 1 Leverage........................ 7.31% 7.48% 7.81% 6.66% 5.28% 4.40% 4.40%
</TABLE>
15
<PAGE>
Recent Developments
UST
The summary financial data set forth below is derived from the audited
financial statements of UST for the fiscal year ended December 31, 1993, and
the unaudited financial statements of UST for the three-month periods ended
December 31, 1994 and 1993, and for the twelve-month period ended December 31,
1994. Actual results for the year ended December 31, 1994, are subject to the
completion by UST of its financial statements and accompanying footnotes and
the audit of such financial information by its independent accountants. See
"Selected Financial Data", as well as "Pro Forma Condensed Financial
Statements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Information Statement attached as Appendix H
hereto.
<TABLE>
Three Months Ended Year Ended December
December 31, 31,
------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(Dollars in Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Consolidated Condensed Statement of Income:
Net Interest Income....................................... $ 26 $ 28 $ 108 $ 116
Provision for Credit Losses............................... 1 1 2 4
------ ------ ------ ------
Net Interest Income After Provision for Credit Losses..... 25 27 106 112
Other Operating Income.................................... 41 76 270 276
Other Operating Expenses.................................. 95 88 342 315
------ ------ ------ ------
Income (Loss) Before Taxes................................ (29) 15 34 73
------ ------ ------ ------
Net Income (Loss)......................................... $ (16) $ 9 $ 21 $ 42
====== ====== ====== ======
Per Common Share:
Fully diluted............................................. $(1.65) $ 0.92 $ 2.09 $ 4.25
====== ====== ====== ======
Cash Dividends Declared................................... $ 0.50 $ 0.47 $ 2.00 $ 1.88
Consolidated Condensed Statement of Condition:
Total Assets.............................................. $3,223 $3,186
Total Deposits............................................ 2,440 2,487
Long-Term Debt............................................ 61 65
Total Stockholders' Equity................................ 223 229
Earnings Ratios (unaudited):
Return on Average Total Assets............................ (1.60)% 0.96% 0.53% 1.11%
Return on Average Total Stockholders' Equity.............. (27.3)% 17.1% 9.2% 20.5%
Capital Ratios (unaudited):
As a Percentage of Risk-Adjusted Period End Total Assets:
Tier 1 Capital.......................................... 13.52% 14.08%
Total Capital........................................... 14.79% 15.47%
Tier 1 Leverage........................................... 5.68% 5.60%
</TABLE>
Results of Operations
On January 19, 1995, UST reported a net loss of $15.5 million for the
fourth quarter of 1994, compared to net income of $9.1 million for the fourth
quarter of 1993. On a fully diluted per share basis, the net loss for the
fourth quarter of 1994 was $1.65, compared to net income of $0.92 for the
fourth quarter of 1993. The results of the fourth quarter of 1994 include
$50.2 million ($27.9 million after taxes) of charges associated with the
pending Merger. Excluding the aforementioned charges, net income for the
fourth quarter of 1994 would have been $12.4 million, or $1.22 on a fully
diluted per share basis.
For the year 1994, net income was $21.0 million, a decrease of 50.4% from
$42.3 million of net income for the year 1993. Fully diluted net income per
share for 1994 was $2.09, compared with $4.25 for 1993, a decrease of 50.8%.
Excluding the charges associated with the Merger, net income for 1994 would
have been $48.9 million, or $4.83 on a fully diluted per share basis.
16
<PAGE>
Fiduciary and Other Fees
Fiduciary and other fees increased 7.5% to $75.6 million in the fourth
quarter of 1994 from $70.3 million in the fourth quarter of 1993. Fiduciary
and other fees related to the Processing Business increased 7.2% to $25.8
million in the fourth quarter of 1994 from $24.0 million in the fourth quarter
of 1993. Fiduciary and other fees related to the Core Businesses increased
7.6% to $49.8 million in the fourth quarter of 1994 from $46.3 million in the
fourth quarter of 1993.
For the year 1994, fiduciary and other fees were $295.6 million, an
increase of 11.9% over fiduciary and other fees of $264.1 million in 1993.
Fiduciary and other fees related to the Processing Business increased 10.5% to
$102.7 million in 1994 from $93.0 million in 1993. Fiduciary and other fees
related to the Core Businesses increased 12.7% to $192.9 million in 1994 from
$171.1 million in 1993. Excluding fiduciary and other fees attributable to
U.S. Trust Company of the Pacific Northwest (formerly Capital Trust Company),
acquired on July 7, 1993, fiduciary and other fees related to the Core
Businesses would have increased 10.5% for the year 1994.
Assets Under Management
Total assets under management increased 2.4% to $33.0 billion at December
31, 1994, from $32.2 billion at December 31, 1993. Such assets include $1.9
billion of funds under management for clients of the Processing Business.
Assets held in custody for personal clients increased 4.7% to $8.2 billion at
December 31, 1994, from $7.9 billion at December 31, 1993. Corporate trust
assets under trusteeship and agency relationships, including assets
administered by UST's bond immobilization business, increased 4.8% to $159.6
billion at December 31, 1994, from $152.2 billion at December 31, 1993. Total
assets under administration for the Processing Business increased 11.2% to
$223.4 billion at December 31, 1994, from $200.9 billion at December 31, 1993.
Securities Gains (Losses) and Net Interest Income
Under the Merger Agreement, the assets of the Chase Acquired Business
(which includes the Processing Business) will include readily available funds
approximately equal to the liabilities (including deposit liabilities), net of
fixed assets, associated with the Chase Acquired Business. The Chase Acquired
Business deposits provided a long-term source of funds to UST which financed a
portion of UST's long- and medium-term interest earning assets. In
anticipation of consummating the Merger and to substantially effect a
rebalancing of UST's overall asset and liability structure, in the fourth
quarter of 1994, UST sold approximately $800 million of U.S. Government
Treasury and Agency securities. The proceeds from such sales were invested in
short-term investment securities and used to reduce short-term borrowings. Net
losses from the sale of securities in the fourth quarter of 1994 totaled $44.2
million ($23.3 million after taxes), compared to a net gain of $3.0 million
from the sale of securities in the fourth quarter of 1993. For the year 1994,
net losses from the sale of securities totalled $42.1 million, compared to a
net gain from the sale of securities of $3.0 million for the year 1993.
Net interest income, on a taxable equivalent basis, was $26.8 million in
the fourth quarter of 1994, a decrease of 7.7% from $29.1 million in the
fourth quarter of 1993. Net interest income in 1994, on a taxable equivalent
basis, was $112.8 million, a decrease of 7.6% from $122.1 million in 1993. The
principal reason for the decline in net interest income during the fourth
quarter of 1994 and the year 1994 was the reduction ($283 million for the
fourth quarter and $187 million for the year) in the average volume of net
non-interest bearing deposit balances.
The average net non-interest bearing deposit balances of the Processing
Business declined 28.8% to $602 million in the fourth quarter of 1994,
compared to $845 million in the fourth quarter of 1993. The average volume of
net non-interest bearing deposit balances of the Processing Business in 1994
were $776 million, a 21.1% reduction from $983 million in 1993. Replacing such
net non-interest bearing deposit balances with short-term borrowings caused
UST's net interest income to decline by $3.2 million ($1.7 million after taxes
or $0.18 per fully diluted share) in the fourth quarter of 1994 and $9.0
million ($4.8 million after taxes or $0.47 per fully diluted share) in 1994.
The net yield on interest-earning assets was 3.43% in the fourth quarter
of 1994 and 3.49% in the year 1994, compared to 3.86% and 3.95% in the
corresponding 1993 periods. The decline in the net yield reflects
17
<PAGE>
the lower level of net non-interest bearing deposit balances and the impact of
the reduction in the investment securities portfolio's maturity structure.
Other Income
Other income was $9.1 million for the fourth quarter of 1994, compared to
$2.4 million for the fourth quarter of 1993, an increase of 282.3%. Other
income was $16.7 million in 1994, compared to $8.9 million in 1993, an
increase of 89.0%. This increase was attributable primarily to the sale by UST
of its partnership interest in Financial Technologies International L.P.; a
pre-tax gain of $6.4 million was recorded in the fourth quarter of 1994 ($3.4
million after taxes or $0.36 per fully diluted share for the fourth quarter
and $0.33 per fully diluted share for the year 1994) in connection with this
transaction.
Total Revenues
Total revenues (defined as fiduciary and other fees and net interest
income after provision for credit losses, adjusted for securities losses
incurred in anticipation of the Merger) were $109.9 million for the fourth
quarter of 1994, compared with $102.9 million for the fourth quarter of 1993.
Total revenues were $420.5 million for the year 1994, compared with $388.2
million for the year 1993. Core Businesses total revenues were $73.5 million
for the fourth quarter of 1994, an increase of 7.6% over $68.3 million of
total revenues in the fourth quarter of 1993. Core Businesses total revenues
for the year 1994 were $270.2 million, an increase of 14.1% over 1993 Core
Businesses total revenues of $236.8 million. Total revenues attributable to
the Processing Business were $36.4 million for the fourth quarter of 1994,
compared with $34.6 million for the fourth quarter of 1993. Total revenues
attributable to the Processing Business in 1994 were $150.3 million, compared
with $151.4 million in 1993.
Operating Expenses
Non-interest operating expenses were $94.3 million in the fourth quarter
of 1994, an increase of 7.5% from $87.7 million in the fourth quarter of 1993.
Non-interest operating expenses were $341.9 million in the year 1994, an
increase of 8.4% from $315.5 million in the year 1993. UST incurred $6.0
million ($4.6 million after taxes) in professional fees and other related
expenses in the fourth quarter of 1994 in connection with the proposed Merger.
Salaries and employee benefit expenses, including sales incentives and
commissions, increased $4.3 million, or 8.6%, in the fourth quarter of 1994,
and $18.3 million, or 9.7%, in the year 1994, reflecting increases in the size
of the asset management and mutual funds services businesses' professional
staffs and related employee benefit expense. In addition, the expense accrued
for UST's stock-based incentive award plans increased by approximately
$500,000 after taxes or $0.05 per share, in the fourth quarter of 1994 as a
result of the higher price of UST Common Stock in the fourth quarter of 1994
following UST's announcement of the Merger Agreement. For the fourth quarter
of 1994, the ratio of total operating expenses to taxable equivalent total
revenues, as deferred ("efficiency ratio") was 79.6%, compared to 84.1% for
the fourth quarter of 1993. For the year 1994, the comparable efficiency ratio
was 79.0%, versus 80.1% for the year 1993. The calculation of the 1994
efficiency ratios excludes the impact of the pending Merger on operating
income and operating expenses.
Core Businesses operating expenses were $51.7 million during the fourth
quarter of 1994, compared with $49.8 million during the comparable fourth
quarter of 1993. The operating expenses attributable to the Processing
Business were $27.8 million for the fourth quarter of 1994, compared with
$32.3 million for the fourth quarter of 1993. Corporate overhead and other
unallocated expenses were $14.9 million and $5.6 million for the fourth
quarters of 1994 and 1993, respectively.
Core Businesses operating expenses were $194.1 million during 1994,
compared with $173.4 million during 1993. The operating expenses attributable
to the Processing Business were $113.6 million for 1994, compared with $110.1
million during 1993. Corporate overhead and other unallocated expenses were
$34.2 million and $32.0 million for 1994 and 1993, respectively.
Income Tax Expense
As a result of the pre-tax loss of $28.6 million in the fourth quarter of
1994, UST recorded a tax benefit of $13.0 million (at a 45.6% effective tax
rate), compared to a tax provision of $6.0 million (at a 39.8% effective
18
<PAGE>
tax rate) for the fourth quarter of 1993. The effective tax rate was 39.0% for
the year 1994, compared to 41.8% for the year 1993. The decline in the
effective tax rate from 1993 to 1994 was due to lower state and local income
taxes.
Asset Quality and Provision For Credit Losses
Average loans increased $223 million, or 18.9%, to $1.4 billion in the
fourth quarter of 1994, from $1.2 billion in the fourth quarter of 1993.
Residential real estate mortgages accounted for more than 70% of the increase
in the loan portfolio. Average loans increased $212.2 million, or 19.4%, to
$1.3 billion in 1994, from $1.1 billion in 1993.
The provision for credit losses was $500,000 in the fourth quarters of
both 1994 and 1993. For the year 1994, the provision for credit losses was
$2.0 million, compared to $4.0 million for the year 1993.
In the fourth quarter of 1994, net loan charge-offs were $228,000,
compared to net loan charge-offs of $1.4 million in the fourth quarter of
1993. As a percentage of total average loans for the quarter, net loan
charge-offs on an annualized basis were six basis points in the fourth quarter
of 1994, compared to 46 basis points in the fourth quarter of 1993. For the
year 1994, net loan charge-offs were $694,000, compared to $2.3 million for
the year 1993. As a percentage of total average loans for the year, net loan
charge-offs were five basis points for 1994, compared to 21 basis points for
1993.
The allowance for credit losses at December 31, 1994, was $14.7 million,
or 1.12% of total average loans outstanding for 1994, compared with an
allowance for credit losses at December 31, 1993, of $13.4 million, or 1.22%
of total average loans outstanding for 1993. The allowance for credit losses
as a percentage of nonperforming loans amounted to 230.72% at December 31,
1994, compared to 223.03% at December 31, 1993.
Nonperforming assets were $18.7 million for the year 1994, compared to
$17.5 million for the year 1993. As a percentage of period-end total assets,
total nonperforming assets amounted to 58 basis points for the year 1994,
compared to 55 basis points for the year 1993.
Capital
The Company's Tier 1 capital ratio was 13.52% at December 31, 1994,
compared to 14.08% at December 31, 1993. The total capital ratio was 14.79% at
December 31, 1994, compared to 15.47% at December 31, 1993. The Tier 1
leverage ratio was 5.68% at December 31, 1994, compared to 5.60% at December
31, 1993.
Chase
On January 17, 1995, Chase announced its results for the fourth quarter
and full year of 1994. The following is a summary of such results. Chase's
announcement is fully set forth as an exhibit to Chase's Current Report on
Form 8-K dated January 17, 1995, which is incorporated herein by reference.
Such Current Report will be superseded by Chase's Annual Report on Form 10-K
for the year ended December 31, 1994. As used in this "Recent Developments"
discussion, the term Chase means The Chase Manhattan Corporation and its
consolidated subsidiaries.
Fourth Quarter and Full Year 1994 Earnings
Chase reported net income of $229 million for the fourth quarter of 1994,
or $1.10 per common share, down 27% from the $313 million, or $1.53 per common
share, reported for the fourth quarter of 1993.
Chase reported a 25% increase in consolidated net income for the full
year of 1994 to $1,205 million, or $5.87 per common share, compared to net
income of $966 million, or $4.79 per common share, for the full year of 1993.
Net Interest Revenue_--_Taxable Equivalent Basis. Net interest revenue,
on a taxable equivalent basis, was $911 million for the fourth quarter of
1994, down $97 million from $1,008 million for the fourth quarter of 1993
which included $21 million from the sale of Argentine past-due interest
("PDI") bonds. The net interest
19
<PAGE>
margin was 3.68% for the fourth quarter of 1994, compared to 4.33% for the
fourth quarter of 1993. Average interest-earning assets for the fourth quarter
of 1994 were $98.1 billion, compared to $92.4 billion for the fourth quarter
of 1993. Average loans were $61.2 billion for the fourth quarter of 1994,
compared to $62.4 billion for the fourth quarter of 1993.
Net interest revenue, on a taxable equivalent basis, was $3,714 million
for the full year of 1994, compared to $3,892 million for 1993, which included
$163 million of interest revenue from Brazilian and Argentine PDI bonds. The
net interest margin was 3.89% for the full year of 1994, compared to 4.33%
(4.15% excluding PDI bonds) for 1993. The net interest margin decline
primarily reflected the combined effects of a rising interest rate environment
as well as increased competition on loan pricing in certain businesses and a
change in the composition of average interest earning assets. Average interest
earning assets increased approximately $5.6 billion, from $89.9 billion in
1993 to $95.5 billion in 1994, due primarily to growth in securities and other
liquid assets to support trading businesses. Management expects such factors
to continue to impact the net interest margin in 1995.
Other Operating Revenue. Total other operating revenue for the fourth
quarter of 1994 was $672 million, compared to $878 million for the fourth
quarter of 1993. Total other operating revenue for the full year of 1994 was
$3,053 million, compared to $2,949 million for the full year of 1993.
Total fees and commissions for the fourth quarter of 1994 were $492
million, compared to $401 million for the fourth quarter of 1993. Total
consumer banking fees for the fourth quarter of 1994 increased to $167
million, from $110 million for the fourth quarter of 1993. The increase
reflected increased servicing fees from a higher volume of mortgage servicing
assets and the absence of accelerated write-downs of such assets in 1994.
Trust and fiduciary fees for the fourth quarter of 1994 were $145 million,
compared to $124 million for the fourth quarter of 1993. The increase
primarily reflected increased customer transaction volumes in the Global
Securities Services business. Investment banking fee revenue for the fourth
quarter of 1994 was $72 million, compared to $53 million for the fourth
quarter of 1993, reflecting improved transaction volumes.
Total fees and commissions for the full year of 1994 were $1,876 million,
up 20% compared to $1,562 million for the full year of 1993, reflecting
increases in all major categories of fee revenue. Total consumer banking fees,
including credit card and mortgage banking fees, were $638 million, compared
to $457 million for the full year of 1993. Trust and fiduciary fees for the
full year of 1994 were $567 million, compared to $465 million for the full
year of 1993. Investment banking fee revenue for the full year of 1994 was
$233 million, compared to $194 million for the full year of 1993.
Total trading revenue for the fourth quarter of 1994 was $32 million,
down significantly from the $168 million for the fourth quarter of 1993. Total
trading revenue for the full year 1994 was $551 million compared with $716
million for 1993. The decline in 1994 trading revenue is attributable to
several factors, the most significant of which was the overall weakness in the
global securities and derivatives markets throughout most of the year. In
addition, the devaluation of the Mexican peso in December 1994, and the
subsequent deterioration of the emerging markets, adversely affected trading
revenue in the fourth quarter, as did the failure by a few counterparties to
perform fully their obligations under derivatives contracts.
The difficult market conditions have continued into early 1995. Although
Chase has reduced its exposure to the emerging markets, management believes
that trading revenue in 1995, particularly in the first quarter, is likely to
be adversely affected by these conditions.
Other revenue for the fourth quarter of 1994 was $148 million, compared
to $309 million for the fourth quarter of 1993. The decrease was due
principally to the absence of significant gains in 1994 from the portfolio of
real estate assets designated for accelerated disposition. Other revenue for
the fourth quarter of 1994 included a gain of $31 million from the sale of
mortgage servicing rights and a gain of approximately $30 million from the
sale of the retail deposit-taking business of Chase Manhattan Bank of Florida,
N.A. Other revenue for the fourth quarter of 1993 included $31 million in
losses related to reducing Chase's cross-border exposure, which was partially
offset in interest revenue by an increase of $21 million.
Other revenue for the full year of 1994 was $626 million, compared to
$671 million reported for 1993. Other revenue for 1994 included $104 million
of net gains from sales and repayment of assets held for accelerated
disposition, compared to $291 million for 1993. Corporate finance-related
investment gains were
20
<PAGE>
$215 million for the full year of 1994, compared to $259 million for the full
year of 1993. Gains from investment securities were $105 million for the full
year of 1994 and $47 million for 1993.
Other Operating Expenses. Total operating expenses were $1,275 million
for the fourth quarter of 1994, compared to $1,199 million for the fourth
quarter of 1993. Operating expenses for fourth quarter 1994 included $105
million related to a voluntary retirement program offered during the fourth
quarter, which was accepted by approximately 1,200 employees. Also included in
fourth quarter 1994 operating expenses were $52 million for productivity
initiatives, such as exiting from certain consumer activities overseas,
regionalizing foreign operations and streamlining domestic infrastructure. For
fourth quarter 1993, operating expenses included $45 million for
business-related investments, including the costs associated with expanding
dealer trading activities and enhanced information systems.
Compared to the same period of 1993, operating expenses for fourth
quarter 1994 reflected higher performance related compensation expenses as
well as increased costs of marketing programs in support of Chase's
businesses, particularly credit card, regional banking and global capital
markets. In addition, operating expenses for fourth quarter 1994 included
approximately $30 million from the acquisition by Chase of American
Residential Holding Corporation, a mortgage lending company. Operating
expenses for the fourth quarter of 1994 were favorably impacted by $28 million
in net revenue from real estate properties acquired in satisfaction of loans,
including loans classified as in-substance foreclosures ("ORE"), compared to
$107 million of net ORE expenses for the same period in 1993.
Other operating expenses for the full year of 1994 totaled $4,472
million, compared to $4,202 million for the full year of 1993. 1993 expenses
include the first quarter 1993 provision of $318 million for ORE held for
accelerated disposition. The growth in expenses in 1994 resulted from the
funding of business growth opportunities, particularly in Chase's global
securities services, national consumer products and global markets activities,
as well as from the fourth quarter 1994 voluntary retirement program and
productivity initiatives. Chase's expense to revenue ratio for 1994 was 66%.
Although management has undertaken the fourth quarter 1994 initiatives as well
as other efforts to control expenses, it is unlikely that the expense to
revenue ratio will decline significantly in 1995.
Income Taxes. Chase recorded a net tax benefit of $18 million, compared
to a $173 million expense for the fourth quarter of 1993. The fourth quarter
benefit in 1994 reflected a $70 million reduction of the deferred federal
income tax valuation allowance.
The provision for income taxes for the full year of 1994 was $565
million, compared to $265 million for 1993. Excluding the tax benefits
applicable to the special provision for the accelerated disposition portfolio,
Chase's tax provision for 1993 would have been approximately $575 million. In
addition, Chase adopted SFAS 109 in the first quarter of 1993 resulting in a
$500 million net benefit recorded as a cumulative effect of a change in
accounting principles.
Provision for Possible Credit Losses and Net Loan Charge-Offs. The
provision for possible credit losses for the fourth quarter of 1994 was $90
million, compared to $195 million for the fourth quarter of 1993. The
provision for possible credit losses for the full year of 1994 was $500
million, compared to $995 million (excluding the accelerated disposition
portfolio) for the full year of 1993.
Total net loan charge-offs (excluding the accelerated disposition
portfolio) for the fourth quarter of 1994 were $95 million, compared to $679
million for the fourth quarter of 1993. No international net loan charge-offs
were recorded for the fourth quarter of 1994, while $490 million of such
charge-offs were recorded for the fourth quarter of 1993.
Total net loan charge-offs (excluding the accelerated disposition
portfolio) for the full year of 1994 were $517 million, down $820 million from
the $1,337 million charged off for the full year of 1993. Domestic consumer
net loan charge-offs for the full year of 1994 were $370 million, down $24
million compared to the full year of 1993. Domestic commercial real estate net
loan charge-offs (excluding the accelerated disposition portfolio) for the
full year of 1994 were $125 million, compared to $277 million for the full
year of 1993. International net loan charge-offs for the full year of 1994
were $3 million, compared to $500 million for the full year of 1993.
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<PAGE>
Reserve for Possible Credit Losses. At December 31, 1994, the reserve
for possible credit losses was $1,414 million, or 2.24% of total loans and
214% of nonaccrual loans, compared to $1,425 million, or 2.36% of total loans
and 135% of nonaccrual loans (excluding the accelerated disposition
portfolio), at December 31, 1993.
Nonaccrual Outstandings and ORE. Total nonaccrual outstandings were $660
million at December 31, 1994, compared to $1,054 million (excluding the
accelerated disposition portfolio) at December 31, 1993. Domestic commercial
real estate nonaccrual outstandings were $266 million at December 31, 1994,
compared to $475 million (excluding the accelerated disposition portfolio) at
December 31, 1993. Other domestic nonaccrual loans outstandings were $244
million at December 31, 1994, compared to $407 million at December 31, 1993.
Total ORE was $257 million at December 31, 1994, compared to $905 million
(excluding the accelerated disposition portfolio) at December 31, 1993.
Domestic Commercial Real Estate Assets. At December 31, 1994, total
domestic commercial real estate assets were $2,306 million, compared to $3,994
million at December 31, 1993. At December 31, 1994, there were no assets
remaining in the accelerated disposition portfolio. At December 31, 1993, $222
million of assets remained in the portfolio.
<TABLE>
Chase Summary Financial Data
(unaudited)
Three Months Ended
December 31, Year Ended December 31,
----------------------- ---------------------------
1994 1993 1994 1993
------ ------ -------- --------
(Dollars in Millions, Except Per Share Amounts and Ratios)
<S> <C> <C> <C> <C>
Consolidated Condensed Statement of Income:
Interest Revenue...................................... $1,947 $2,155 $ 8,134 $ 8,468
Interest Expense...................................... 1,043 1,153 4,445 4,605
------ ------ -------- --------
Net Interest Revenue.................................. 904 1,002 3,689 3,863
Provision for Possible Credit Losses.................. 90 195 500 995
Provision for Loans Held for Accelerated
Disposition......................................... -- -- -- 566
------ ------ -------- --------
Net Interest Revenue After Provisions for Possible
Credit Losses and Loans Held for Accelerated
Disposition......................................... 814 807 3,189 2,302
Other Operating Revenue............................... 672 878 3,053 2,949
Other Operating Expenses.............................. 1,275 1,199 4,472 4,520
------ ------ -------- --------
Income Before Taxes and Cumulative Effect of Change in
Accounting Principle................................ 211 486 1,770 731
Net Income............................................ 229 313 1,205 966
Per Common Share:
Primary Earnings...................................... $ 1.10 $ 1.53 $ 5.87 $ 4.79
Cash Dividends Declared............................... 0.40 0.30 1.46 1.20
Consolidated Condensed Statement of Condition:
Total Assets.......................................... $114,038 $102,103
Total Deposits........................................ 69,956 71,509
Intermediate- and Long-Term Debt...................... 5,070 5,641
Nonredeemable Preferred Stock......................... 1,400 1,399
Common Stockholders' Equity........................... 6,959 6,723
Total Stockholders' Equity............................ 8,359 8,122
Earnings Ratios (unaudited):
Return on Average Total Assets*....................... 0.75% 1.18% 1.01% 0.94%
Return on Average Common Stockholders' Equity......... 11.3% 17.9% 15.8% 14.6%
Capital Ratios (unaudited):
As a Percentage of Risk Adjusted Period End Total
Assets:
Tier 1 Capital...................................... 8.30% 8.44%
Total Capital....................................... 12.78% 13.22%
Tier 1 Leverage....................................... 7.37% 7.81%
- ---------------
* On January 1, 1994, Chase adopted FASB Interpretation No. 39. As a result of
such adoption, Chase's Trading Account Assets and Liabilities increased
approximately $8 billion at December 31, 1994. This had the effect of
decreasing the return on average total assets ratio and the Tier 1 Leverage
ratio.
</TABLE>
22
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement-Prospectus is being furnished to holders of UST
Common Stock in connection with the solicitation of proxies by the UST Board
for use at the Special Meeting, to be held at the offices of United States
Trust Company of New York, 114 West 47th Street, New York, New York, in the
Auditorium on the first floor, on March 22, 1995, at 10:00 A.M., local time,
and any adjournments or postponements thereof, (i) to consider and vote upon
the Distribution Proposal, (ii) to consider and vote upon the Merger Proposal
and (iii) to transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Each copy of this Proxy Statement-Prospectus mailed to holders of UST
Common Stock is accompanied by a form of proxy for use at the Special Meeting.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO UST IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
This Proxy Statement-Prospectus is also furnished to UST stockholders as
the prospectus of Chase relating to the issuance by Chase of shares of Chase
Common Stock in connection with the Merger.
Record Date
The UST Board has fixed the close of business on February 1, 1995, as the
Record Date for the determination of the holders of UST Common Stock entitled
to receive notice of and to vote at the Special Meeting and at any
adjournments or postponements thereof.
Vote Required
As of the Record Date, 9,489,309 shares of UST Common Stock were
outstanding and held by approximately 2,070 holders of record. Each share of
UST Common Stock outstanding on the Record Date will be entitled to one vote
upon each matter to come before the Special Meeting. Approval of the
Distribution and authorization and adoption of the Merger Agreement require,
in each case, the affirmative vote of two-thirds (or 66 2/3%) of the total
number of shares entitled to be voted at the Special Meeting.
The presence in person or by proxy at the Special Meeting of a majority
of the number of shares entitled to be voted is necessary to constitute a
quorum for the transaction of business. Abstentions will be counted as present
for purposes of determining whether a quorum is present. With respect to the
proposals to approve the Distribution and to authorize and adopt the Merger
Agreement, abstentions will have the same effect as a vote against each such
proposal. Under the rules of the NASD, brokers who hold shares in street name
for customers will not have the authority to vote such shares on the
Distribution Proposal or the Merger Proposal unless such brokers receive
specific instructions from the beneficial owners of such shares. While shares
as to which there is a non-vote by a broker will be counted as present for
purposes of a quorum, such non-vote will have the same effect as a vote
against approval of the Distribution and against authorization and adoption of
the Merger Agreement.
It is a condition to the consummation of the Distribution that the Merger
Agreement have been authorized and adopted by the stockholders of UST, and it
is a condition to consummation of the Merger that the Distribution have been
approved by the stockholders of UST.
As of the Record Date, directors and executive officers of UST owned
beneficially an aggregate of 792,431 shares of UST Common Stock (including
shares issuable upon the exercise of employee stock options which are
currently exercisable or which become exercisable within 60 days), or
approximately 7.93% of the shares of UST Common Stock outstanding on such
date. See "The Merger -- Interests of Certain Persons in The Transactions",
"Effect of Transactions on UST Employees and UST Benefit Plans" and
"Beneficial Ownership".
23
<PAGE>
As of the Record Date, directors and executive officers of Chase
beneficially owned 1,000 shares of UST Common Stock.
Voting and Revocation of Proxies
Shares of UST Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. If a proxy is signed and
returned without indicating any voting instructions, shares of UST Common
Stock represented by the proxy will be voted FOR both the Distribution
Proposal and the Merger Proposal. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted by the filing of an instrument revoking it or of a duly
executed proxy bearing a later date with the Secretary of UST prior to or at
the Special Meeting, or by voting in person at the Special Meeting. All
written notices of revocation and other communications with respect to
revocation of proxies should be addressed to U.S. Trust Corporation, 114 West
47th Street, New York, New York 10036. Attention: Office of the Secretary.
Attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy.
The UST Board is not currently aware of any matters to come before the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their best judgment. Proxies voted against
the Distribution Proposal or the Merger Proposal, however, will not be used to
vote in favor of an adjournment to the Special Meeting for the purpose of
soliciting additional votes.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
UST, who will not be specifically compensated for such services, may solicit
proxies from UST stockholders personally or by telephone, telecopy or telegram
or other forms of communication. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable expenses
incurred in sending proxy materials to beneficial owners.
In addition, UST has retained Morrow & Co. to assist in the solicitation
of proxies from its stockholders. The fees to be paid to such firm for such
services by UST are not expected to exceed $7,500, plus reasonable
out-of-pocket costs and expenses. UST will bear the expenses in connection
with the solicitation of proxies for the Special Meeting.
Dissenters' Rights
Holders of UST Common Stock will be entitled to dissenters' rights in
connection with the Merger. See "The Merger -- Dissenters' Rights".
THE TRANSACTIONS
Pursuant to the transactions described in this Proxy
Statement-Prospectus, Chase will acquire the Chase Acquired Business, which is
comprised of the Processing Business and the Related Back Office. The
Processing Business consists of (i) the unit investment trust business of
USTNY and its affiliates, which includes, among other things, acting as
trustee for "unit investment trusts" (as such term is defined in the
Investment Company Act of 1940, as amended), maintaining custody of securities
and investments for unit trusts and providing other processing support to unit
trusts, (ii) the mutual funds services business of UST and its subsidiaries,
which includes, among other things, providing domestic and global custody,
transfer agency and other administrative services to registered investment
companies and (iii) the institutional asset services business of USTNY and its
affiliates, which includes, among other things, master trust and custody
services, securities lending services, rabbi trust services and certain money
management services. The Related Back Office consists of USTNY's Computer
Services Division and Securities Services and Trust Operations Division,
including, but not limited to, computer equipment, furniture, fixtures,
inventory and supplies and
24
<PAGE>
other property (but not including any property related to certain bank
processing services, such as loan processing services, deposit and check
processing services and the like).
The sale of the Chase Acquired Business will be effected through a series
of sequential transactions, including the Distribution and the Merger, all as
set forth in the Merger Agreement. The purpose of this complex structure is to
permit the sale of the Chase Acquired Business to Chase on a tax-free basis to
UST and its stockholders in a transaction in which UST stockholders will
receive Chase Common Stock and will also retain their proportionate equity
interests in the Core Businesses in the form of Spinco Common Stock to be
received in the Distribution. In order to ensure the tax-free nature of the
sale, UST (which will then hold only the Chase Acquired Business) will merge
with and into Chase. Accordingly, a "reverse spinoff" structure was adopted
pursuant to which the Core Businesses will be transferred to Spinco and its
subsidiaries and the common stock of Spinco will, prior to the Merger, be
distributed to UST stockholders in the Distribution. After the Distribution
and at the Effective Time, UST and its remaining subsidiaries, USTNY, Mutual
Funds Service Company, a Delaware corporation ("MF Service Company"), and U.S.
Trust Company of Wyoming, a Wyoming corporation ("UST-WY"), will hold the
Chase Acquired Business. Chase will effectively acquire the Chase Acquired
Business in the Merger and the subsequent merger of USTNY with and into CMB
(the "Bank Merger"), pursuant to which UST and USTNY will be merged with and
into Chase and CMB, respectively, and MF Service Company and UST-WY will
become subsidiaries of Chase or CMB.
The current corporate structure of UST and its subsidiaries is as
follows:
The significant sequential transactions that will be effected in order to
accomplish the Distribution and the Merger, all of which will take place at or
shortly before the Effective Time, are briefly described below:
First, pursuant to the Contribution Agreement, USTNY will assign and
transfer the Core Businesses to New Trustco, which will have been
organized as a wholly owned bank subsidiary of USTNY;
Second, pursuant to the Distribution Agreement, USTNY will dividend
all the stock of New Trustco to UST;
25
<PAGE>
Third, pursuant to the Distribution Agreement, UST will contribute
to Spinco all the stock of New Trustco, the capital stock of all UST's
subsidiaries (other than USTNY, MF Service Company and UST-WY) and
certain miscellaneous assets of UST, including cash or securities then
held by UST;
Following the Internal Reorganization described above, the corporate
structure of UST and its subsidiaries will be as follows:
Fourth, pursuant to the Distribution Agreement, Spinco will effect a
recapitalization pursuant to which its authorized common stock will be
increased to 40,000,000 shares and the shares then outstanding, all of
which will be held by UST, will be equal to the number of shares of UST
Common Stock outstanding immediately prior to the Distribution;
Fifth, pursuant to the Distribution Agreement, UST will distribute
to each of its stockholders in the Distribution one share of Spinco
Common Stock in respect of each share of UST Common Stock held by such
stockholder on the Distribution Record Date;
Sixth, shortly after the Distribution, the Merger will be
consummated pursuant to the Merger Agreement; and
Seventh, immediately after the Merger, the Bank Merger will be
completed, and USTNY will merge into CMB.
26
<PAGE>
Following the Distribution, the Merger and the Bank Merger, the
corporate structure of UST and its subsidiaries and Chase and its
subsidiaries (as affected by the Merger and the Bank Merger) will be as
follows:
- ---------------
* Expected to be less than 7% of the outstanding shares of Chase Common Stock.
27
<PAGE>
THE COMPANIES
UST
UST was incorporated in New York in 1977 and became a bank holding
company in 1978. USTNY, UST's principal subsidiary, was created as a trust
company by Special Act of the New York Legislature in 1853. UST, through USTNY
and its other subsidiaries, provides financial services to individuals and
institutions. UST conducts five principal businesses: asset management,
private banking, special fiduciary, corporate trust and securities processing.
The Chase Acquired Business will constitute all the assets and liabilities of
UST at the Effective Time. See "The Distribution". Immediately prior to the
Time of Distribution, the Core Businesses will be transferred to Spinco. At
the Time of Distribution, the Core Businesses, which will be held directly or
indirectly by Spinco, will include the assets and liabilities of, and certain
of the subsidiaries conducting, UST's asset management, private banking,
special fiduciary and corporate trust businesses. At September 30, 1994, UST
and its consolidated subsidiaries had total assets of approximately $4.0
billion, total deposits of approximately $2.4 billion and shareholders' equity
of approximately $239.6 million. For the nine months ended September 30, 1994,
the Chase Acquired Business accounted for approximately $113.9 million, or
37%, of UST's consolidated revenues. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Information Statement
attached as Appendix H hereto.
The Chase Acquired Business is currently conducted by USTNY utilizing
certain of its assets and by MF Service Company and UST-WY, each of which is
engaged solely in the Processing Business. The Core Businesses, which includes
all subsidiaries of UST not engaged primarily in the Processing Business
(other than USTNY), will be transferred to Spinco (or subsidiaries of Spinco)
prior to the Distribution, and, accordingly, will not be acquired by Chase as
a consequence of the Merger.
UST's principal executive office is located at 114 West 47th Street, New
York, New York 10036 and its telephone number at such office is (212)
852-1000.
Chase
Chase is a bank holding company that was incorporated in Delaware in 1969
and whose principal subsidiary is CMB. In addition to CMB, Chase holds
investments in other subsidiaries that provide a variety of financial
services, including commercial and consumer financing, investment banking,
securities trading and investment advisory services. Chase's primary strategy
is that of a global bank with a diversified domestic base serving three
interrelated franchises: global financial services, domestic consumer products
and regional banking in the northeastern United States. Over the last few
years, Chase has focused its business and marketing efforts on two types of
customers -- retail (individuals and small and medium-sized businesses) and
wholesale (primarily large corporations and institutions). Chase's business
groups serving retail customers are National Consumer Product Companies,
Regional Banking and Global Private Banking; those serving wholesale customers
are Global Corporate Finance, Global Markets and Transaction and Information
Services. In addition to these core business groups, the Real Estate Finance
Sector manages Chase's loan portfolio related to the domestic commercial real
estate business and the LDC Portfolio Management group oversees Chase's
portfolio of cross-border extensions of credit to refinancing countries. At
September 30, 1994, Chase and its consolidated subsidiaries had total assets
of approximately $117.1 billion, total deposits of approximately $68.9 billion
and shareholders' equity of approximately $8.4 billion.
Chase's ability to pay dividends on its preferred and common stock is
derived from several sources, including, among other sources, dividends from
its banking and nonbanking subsidiaries. The ability of Chase's banking
subsidiaries to pay dividends is subject to certain restrictions.
National banks are subject to various legal limitations which prohibit
the payment of dividends in certain circumstances and restrict the amount that
may be paid without the prior approval of the OCC. Under the provisions of 12
U.S.C. 56, a national bank may not pay a dividend in an amount greater than
its undivided profits. In addition, under the provisions of 12 U.S.C. 60, the
approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year exceeds such bank's net income for that
year,
28
<PAGE>
combined with its retained net income for the preceding two calendar years,
less any required transfers to surplus.
At September 30, 1994, under the more restrictive of these limitations,
CMB could declare dividends during the remainder of 1994 of approximately $1.3
billion, combined with an additional amount equal to its net income from
September 30, 1994 up to the date of any dividend declaration. Under
applicable state and Federal laws, The Chase Manhattan Bank (USA) ("Chase
USA") and Chase Bank of Maryland ("Chase Maryland") could declare dividends
during the remainder of 1994 of approximately $1 billion and $6 million,
respectively, combined with an additional amount equal to their respective
retained net profits from September 30, 1994 up to the date of any dividend
declaration. The payment of dividends by bank holding companies and their
banking subsidiaries may also be limited by other factors, including
applicable regulatory capital guidelines and leverage limitations.
Chase is a legal entity separate and distinct from CMB and Chase's other
subsidiaries. There are various legal limitations on the extent to which
banks, such as CMB, Chase USA and Chase Maryland, that are insured by the
FDIC, may finance or otherwise supply funds to certain of their affiliates. In
particular, each bank that is a subsidiary of Chase is subject to certain
restrictions on any extensions of credit to, or other covered transactions,
such as certain purchases of assets, with Chase or such affiliates. Such
restrictions prevent banking subsidiaries of Chase from lending to Chase and
their affiliates unless such extensions of credit are secured by collateral in
specified amounts and are made on terms and conditions that are substantially
the same as those prevailing for comparable transactions with non-affiliated
companies. Further, such covered transactions by any such bank are limited in
amount as to Chase or any such affiliate to 10 percent of such bank's capital
and surplus and as to Chase and all such affiliates in the aggregate to 20
percent of such bank's capital and surplus.
Chase's principal executive office is located at 1 Chase Manhattan Plaza,
New York, New York 10081 and its telephone number at such office is (212)
552-2222.
To obtain additional information concerning the respective businesses of
UST and Chase, including audited and unaudited financial information, see
"Available Information" and "Incorporation of Certain Information by
Reference". For a more detailed description of the businesses to be
transferred to Spinco, including audited and unaudited financial information,
see the Information Statement attached as Appendix H hereto.
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects
of the proposed Merger. To the extent that it relates to the Merger Agreement,
the following description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, which is attached as
Appendix A to this Proxy Statement-Prospectus and is incorporated herein by
reference. As used in this Proxy Statement-Prospectus, the "Chase Acquired
Company To Be Merged" means UST, together with its subsidiaries, USTNY, MF
Service Company and UST-WY (and any subsidiaries of MF Service Company or
UST-WY), which collectively will own and conduct the Chase Acquired Business
at the Effective Time. All UST stockholders are urged to read the Merger
Agreement in its entirety.
Background of the Merger
UST's management has regularly reviewed possible strategies and
transactions to enhance UST's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
UST's business and operations, thereby increasing stockholder value. These
strategies included a possible acquisition and joint ventures, internal
restructurings, outsourcing of operational services and the divestiture of one
of its businesses. In December 1993, UST's management determined that UST
should examine the possibility of a divestiture of the Processing Business in
its entirety. The principal reasons for UST's determination to actively pursue
this strategic course of action was the conclusion that the securities
processing business would require significant allocations of capital and
financial resources on an ongoing basis
29
<PAGE>
to remain competitive, while UST anticipated needs for additional capital and
financial resources to expand its more profitable growth opportunities in the
asset management, private banking, and corporate trust businesses over the
coming years. In addition, UST's management believed that, in light of the
size of its capital, the inherent operating risks in securities processing
businesses generally could, over time, threaten UST's reputation and franchise
in the Core Businesses.
Accordingly, beginning in early 1994, UST explored with counsel and CS
First Boston possible structures for various transactions involving the sale
or other disposition of the Processing Business. During the early summer of
1994, members of UST's management had informal discussions with a large
financial institution regarding a possible asset swap involving the assets of
the Processing Business, but were unable to agree with such financial
institution on how to proceed with such a transaction. In August 1994, the UST
Board determined to continue to explore various strategic alternatives
regarding the Processing Business, and authorized CS First Boston to prepare
materials and contact companies on a preliminary basis to determine whether a
sale of the Processing Business or its assets to one of such companies was
possible at an appropriate price.
CS First Boston contacted 10 companies, including Chase, on a
confidential basis. On August 17, 1994, after executing confidentiality
agreements, certain nonpublic information concerning the Processing Business
and the Related Back Office was provided to, and initial indications of
interest solicited from, all 10 of those companies. On September 6, 1994, UST
received indications of interest from six companies regarding the purchase of
the Processing Business (and, in some cases, the Related Back Office) on both
a taxable and non-taxable basis. Based on the indications of interest, UST
invited five of the six companies to perform a due diligence review of the
Processing Business and the Related Back Office. On October 18, 1994,
following completion of due diligence reviews by all five companies, UST
received formal bids for the purchase of the Processing Business and the
Related Back Office from three companies, including Chase, each of which
involved a tax-free transaction structure. On October 21, 1994, following
discussions with each of the three bidders regarding certain aspects of their
respective bids, UST received revised bids from Chase and one other bidder.
UST, in consultation with its legal and financial advisors, considered all
aspects of the revised bids, including the consideration offered, the proposed
transaction structure, the proposed treatment of UST employees (including
severance arrangements) and the proposed arrangements for providing back
office services to Spinco.
Based primarily on the consideration offered by Chase, as well as the
other aspects of its bid, UST agreed to enter into exclusive negotiations with
Chase on October 21, 1994, and began immediately thereafter negotiating the
terms of a transaction.
UST continued negotiations with Chase from October 21, 1994 through
November 17, 1994. These negotiations were conducted principally at a number
of meetings attended by representatives of UST and Chase and their respective
legal and/or financial advisors. Negotiations were also conducted
telephonically from time to time during such period. The negotiations focused
principally on the terms of the various documents relating to the Distribution
and the Merger, as well as the terms of a services agreement to be entered
into by Spinco and a subsidiary of Chase at the Effective Time pursuant to
which such subsidiary would provide Spinco with custody and other back office
services following the Merger.
On October 24, 1994, in response to unusually high trading volume in its
stock, UST issued a press release announcing that it was engaged in
negotiations with a third party for the sale of its securities processing
business. On November 16, 1994, in response to an article in the American
Banker that incorrectly described the proposed transaction, UST issued a press
release reiterating its October 24 press release.
On November 17, 1994, the parties reached substantial agreement on the
terms of the transaction. The UST Board considered the terms of the Merger
Agreement and the related documents at a meeting on the evening of November
17, 1994. At the November 17 meeting, CS First Boston made a presentation to
the UST Board regarding the transactions and delivered its fairness opinion.
See "-- Opinion of the Financial Advisor to the UST Board". Following
unanimous approval by the members of the UST Board present at the meeting to
consider the Distribution and the Merger, the Merger Agreement was entered
into early on the morning of November 18, 1994, and the proposed transaction
was publicly announced shortly thereafter.
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UST's Reasons for the Merger; Recommendation of the UST Board
The UST Board has unanimously determined the Merger to be in the best
interests of and fair to UST and its stockholders. The UST Board has approved
the Merger Agreement and unanimously recommends its authorization and adoption
by UST stockholders.
In reaching this determination and recommendation, the UST Board
considered the following factors:
(a) the terms and conditions of the Merger Agreement, including (i)
the amount and form of the consideration, (ii) the terms for determining
the amount of Chase Common Stock to be received in connection with the
Merger by UST stockholders and (iii) the degree of flexibility provided
to UST to conduct the businesses to be transferred to Spinco prior to the
Effective Time;
(b) the existing conditions in, and future prospects of, the
Processing Business and in particular the ongoing capital and financial
requirements of UST's securities processing business and the existing
position of UST as an independent competitor in that industry;
(c) the scale required to maintain or improve margins in securities
processing businesses generally, the growth prospects of UST with and
without the Processing Business, UST's lack of an in-house global custody
capability and other related revenue producing services that could
improve the profitability of the Processing Business, and the potential
for damaging the reputation of UST and its overall franchise business
resulting from the relative difficulty faced by smaller institutions in
managing the inherent operating risks in securities processing businesses
generally;
(d) the fact that the Distribution will allow UST stockholders to
retain a continuing interest in UST's asset management, private banking,
special fiduciary and corporate trust businesses through their ownership
interest in Spinco following the Merger;
(e) historical data relating to market prices and trading volumes of
and dividends on UST Common Stock, historical data relating to market
prices and trading volumes of and dividends on Chase Common Stock, market
prices of Chase Common Stock compared to those of certain other publicly
traded companies and Chase's credit ratings;
(f) the regulatory approvals and private letter ruling required for
the Merger, as well as the risks, uncertainties and possible delays
associated with such regulatory approvals and private letter ruling, and
the estimated length of time required to consummate the Merger;
(g) the fact that CS First Boston had solicited 10 companies for the
sale of UST's securities processing business, and that Chase's proposal,
which resulted in the execution of the Merger Agreement, was, in the view
of the UST Board, the most favorable proposal received by UST;
(h) the structure of the Merger and the Distribution, which would
permit UST stockholders to exchange their UST Common Stock for Chase
Common Stock and to receive shares of Spinco Common Stock, in each case
on a tax-free basis;
(i) Chase's willingness to hire approximately 1,120 UST employees,
thereby limiting the number of UST employees whose employment will be
terminated as a result of the transaction;
(j) the terms of the Post Closing Covenants Agreement, including the
indemnification provisions, the minimum capital requirement and the
noncompetition provisions relating to Spinco (see "The Distribution --
Terms of the Post Closing Covenants Agreement");
(k) the terms of the Tax Allocation Agreement to be entered into
prior to the Distribution between Chase, UST and Spinco (the "Tax
Allocation Agreement") (see "The Distribution -- Terms of the Tax
Allocation Agreement");
(l) Chase's ability to provide quality back office services for
Spinco and its subsidiaries following the Merger;
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(m) the terms of the Services Agreement, including the annual base
fee and the renewal option; and
(n) the presentation of CS First Boston delivered to the UST Board
at its meeting on November 17, 1994, including its written opinion dated
November 17, 1994, as updated on the date of this Proxy
Statement-Prospectus, that, as of each such date, the consideration to be
received by UST stockholders in connection with the Merger, which was
determined by arm's-length negotiations between UST and Chase, is fair to
such stockholders from a financial point of view.
The UST Board believes that the factors in paragraphs (b), (c), (d), (f),
(i), (l) and (m) support its determination that the Merger is in the best
interests of UST and its stockholders. In particular, the UST Board believes
that the factors described in paragraphs (b), (c) and (d) support this
determination because the Merger (together with the Distribution) allows UST
stockholders to sell the Processing Business to Chase while maintaining their
equity interests in the Core Businesses. The UST Board also believes that the
factors described in paragraphs (l) and (m) support this determination because
the UST Board believes Chase will provide quality back office services for
Spinco at a cost substantially below the cost that would be required for
Spinco to provide such services to itself.
The UST Board considered the factors in paragraphs (a), (e), (g), (h),
(j), (k) and (n) above in reaching its determination that the consideration to
be received in the Merger by UST stockholders is fair. In particular, the UST
Board believes the terms of the transactions and the amount and form of
consideration to be received in the Merger, taking into account the historical
data described in paragraph (e), allow UST stockholders to receive a fair
price for the Processing Business, and that such belief is supported by CS
First Boston's solicitation process described in paragraph (g) and CS First
Boston's fairness opinion described in paragraph (n).
Based on all of these considerations, and such other matters as the
members of the UST Board deemed relevant, the members of the UST Board present
at the meeting at which the Merger was considered unanimously approved the
Merger Agreement and the transactions contemplated thereby.
The foregoing discussion of the information and factors considered and
given weight by the UST Board is not intended to be exhaustive but is believed
to include all material factors considered by the UST Board. In addition, in
reaching the determination to approve, and to recommend approval and
authorization of, the Distribution and the Merger, the UST Board did not
assign any relative or specific weights to the foregoing factors which were
considered, and individual directors may have given different weights to
different factors. The members of the UST Board present at the meeting at
which the Distribution and the Merger were considered were, however, unanimous
in their recommendation to the holders of UST Common Stock that the
Distribution be approved and that the Merger Agreement be authorized and
adopted.
THE UST BOARD RECOMMENDS THAT UST STOCKHOLDERS VOTE FOR APPROVAL OF THE
DISTRIBUTION AND AUTHORIZATION AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of the Financial Advisor to the UST Board
UST retained CS First Boston to act as financial advisor in connection
with the Merger and related matters based upon its qualifications, expertise,
and reputation, as well as CS First Boston's prior investment banking
relationship and familiarity with UST. CS First Boston is an internationally
recognized investment banking firm regularly engaged in the valuation of
businesses (including banks and financial institutions) and their securities
in connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and
other purposes.
On November 17, 1994, at the meeting at which the UST Board approved the
Merger Agreement, and as of the date of this Proxy Statement-Prospectus, CS
First Boston delivered opinions to the UST Board to the effect that, as of
such dates, the consideration to be received by UST stockholders pursuant to
the Merger,
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which was determined by arm's-length negotiations between UST and Chase, was
fair to such stockholders from a financial point of view.
THE FULL TEXT OF THE OPINION DATED AS OF THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS
APPENDIX F AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT-PROSPECTUS. THE SUMMARY OF THE OPINIONS OF CS FIRST BOSTON SET FORTH
IN THIS PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE OPINION ATTACHED HERETO AS APPENDIX F. THE NOVEMBER 17, 1994 OPINION IS
SUBSTANTIALLY IDENTICAL TO THE OPINION ATTACHED HERETO.
In rendering its opinions, CS First Boston (a) reviewed certain publicly
available financial information relating to UST and Chase, (b) reviewed
certain other information, including financial forecasts, provided to it by
management of UST, and met with the management of UST to discuss the Chase
Acquired Business, (c) considered the financial terms of certain transactions
in the processing industry, (d) reviewed publicly available financial and
stock market data for companies providing data processing services and (e)
considered such other information, financial studies, analyses, and
investigations, and financial, economic, and market criteria that it deemed
relevant.
CS First Boston, in conducting its analyses and in arriving at its
opinions, did not assume any responsibility for independent verification of
any of the information considered and relied on the completeness and accuracy
of such information in all material respects. With respect to the financial
forecasts, UST management advised CS First Boston, and CS First Boston assumed
without independent verification, that such financial forecasts were
reasonably prepared, reflecting the best currently available estimates and
judgments of UST management as to the future financial performance of the
Chase Acquired Business (and the assumptions and bases therefor). CS First
Boston did not assume any responsibility for conducting, nor did it conduct, a
physical inspection, evaluation or appraisal of any of the properties or
assets of UST and did not make or obtain any such inspection, evaluation or
appraisal. The opinions of CS First Boston are necessarily based on economic,
market, and other conditions as in effect on, and the information made
available to CS First Boston as of, the dates of its analyses. CS First Boston
did not express and is not expressing any opinion as to what the value of the
Chase Common Stock or Spinco Common Stock will be when issued to the UST
stockholders in connection with the Merger or the Distribution, or the prices
at which such stock will trade subsequent to such issuance. CS First Boston
assumed, with the consent of UST, that the Merger and the Distribution will be
treated as tax-free transactions.
The following is a brief summary of the analyses performed by CS First
Boston in connection with rendering its opinion dated November 17, 1994:
Discounted Cash Flow Analysis. CS First Boston performed a
discounted cash flow analysis using financial forecasts furnished by UST
management, and based on a number of assumptions including, among other
things, discount rates ranging from 12.0% to 14.0%, and terminal value to
earnings multiples ranging from 8x to 10x applied to 1999 forecasted
earnings, with implied perpetual dividend growth ranging from 0.0% to
4.0%, all of which were selected by CS First Boston based on its
experience in performing such analysis. This analysis showed values
ranging from $235 million to $290 million, compared to an assumed value
for the Merger of $363.5 million. The analysis did not reflect any
potential cost savings, including the elimination of overhead allocated
by UST to the Chase Acquired Business. This analysis did not purport to
be indicative of actual or expected values of the Chase Acquired Business
before or after the Merger.
Comparable Transaction Analysis. CS First Boston analyzed certain
financial aspects of certain transactions for which data was available
since 1990. These transactions involved companies engaged in the
financial services data processing business. Data processing services
comprise only a limited component of the Chase Acquired Business. CS
First Boston compared the enterprise value of the businesses sold as a
multiple of last-twelve-month ("LTM") revenues and earnings before income
tax
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("EBIT") and the equity value of the businesses sold as a multiple of LTM
net income. For the Merger, CS First Boston assumed an enterprise value
and an equity value of $363.5 million, and used estimated 1994 revenues,
EBIT and net income (each as provided by UST management) for the Chase
Acquired Business. Averages excluded certain outlying multiples. The
multiples of enterprise value to LTM revenues ranged from 0.8x to 1.9x
and averaged 1.4x (compared to a multiple of 2.3x for the Merger). The
multiples of enterprise value to LTM EBIT ranged from 10.2x to 17.7x and
averaged 14.1x (compared to a multiple of 9.3x for the Merger). The
multiples of equity value to LTM net income ranged from 16.6x to 24.3x
and averaged 21.5x (compared to 16.3x for the Merger). In its
presentation to the UST Board, CS First Boston indicated that while this
analysis is a customary valuation methodology, because of dissimilarities
between the companies involved and the Chase Acquired Business, CS First
Boston gave less weight to this methodology in arriving at its opinions.
Comparable Company Analysis. In performing comparable company
analysis, CS First Boston analyzed financial information and ratios of
the following processing companies: First Financial Management Corp,
First Data Corp., SPS Transaction Services, National Data Corp., Equifax,
Inc., Fiser Inc. and Total Systems Services, Inc. (using data as of June
30, 1994, except for per-share amounts). Among the financial information
compared was information relating to operating margins, net margins,
return on average common equity, return on average total capital and
market value as a multiple of LTM earnings per share, of book value and
of earnings per share estimates. Earnings per share estimates were based
on First Call estimates and longer-term growth estimates were based on
Institutional Brokers Estimate System ("IBES") estimates. First Call and
IBES are third-party data services that monitor and publish estimates
produced by selected research analysts regarding companies of interest to
investors. CS First Boston concluded that the comparison of the Chase
Acquired Business to these companies was not meaningful because of
variances in projected revenue and earnings growth rates and
dissimilarity between the businesses conducted, based on, among other
things, differences between each of the companies' asset and business
mix, financial position, operations and markets.
In arriving at its opinions, CS First Boston performed certain financial
analyses, the material portions of which are summarized above. CS First Boston
believes that these analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses could create
an incomplete view of the process underlying its opinions. Moreover, the
summary set forth above does not purport to be a complete description of the
analyses performed by CS First Boston. CS First Boston's opinions are
addressed solely to the UST Board and should not be viewed as a recommendation
as how any UST stockholders should vote. The analyses performed by CS First
Boston are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect actual market valuations or trading ranges, which
may vary significantly from amounts set forth above. Actual trading values
will depend on several factors, including events affecting the sectors of the
processing industry in which UST competes, general economic, market and
interest rate conditions, and other factors that generally influence the price
of securities. With respect to the comparable company analysis and comparable
transaction analysis summarized above, no company utilized as a comparison is
identical to UST or the Chase Acquired Business and such analyses necessarily
involve complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that could affect the acquisition or trading values of the companies analyzed.
In performing its analyses, CS First Boston made numerous assumptions
regarding industry performance, general business, and economic conditions, and
other matters, many of which are beyond the control of UST. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given more weight than any other analyses. CS
First Boston's opinion was only one of many factors taken into consideration
by the UST Board.
In connection with its opinion dated as of the date of this Proxy
Statement-Prospectus, CS First Boston confirmed the appropriateness of its
reliance on the analyses used to render its November 17, 1994, opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith.
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UST and CS First Boston have entered into an agreement relating to the
services to be provided by CS First Boston in connection with the Merger. UST
has agreed to pay CS First Boston fees as follows: (a) a fee of one percent of
the aggregate consideration paid for the Chase Acquired Business plus (b) an
additional advisory fee of $250,000 for future services. In the event the
Merger is not completed as proposed but UST consummates a restructuring or
spin-off, a fee of $500,000 will be payable, in lieu of the fee described in
clause (a) above. UST has also agreed to reimburse CS First Boston for its
reasonable out-of-pocket expenses and to indemnify CS First Boston and its
affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under the federal securities laws.
In addition to the financial advisory services referred to above, CS
First Boston acted as financial advisor to UST in connection with various
acquisition and divestiture assignments and in connection with the placement
of debt securities, for all of which CS First Boston has received customary
compensation. CS First Boston has also provided certain investment banking
services to Chase for which CS First Boston has received customary
compensation.
Chase's Reasons for the Merger
Chase seeks to acquire the Chase Acquired Business to strengthen and
expand its existing transaction and information services business. Chase
currently provides domestic and global custody, cash management, payments,
trade services, trust, and other fiduciary services to corporate and
institutional clients throughout the United States and around the world
through its Chase InfoServ International ("InfoServ") unit. InfoServ's Global
Securities Services ("GSS") unit is a leading provider of domestic and global
custody services, with estimated assets under custody of approximately $1.3
trillion as of the third quarter of 1994. GSS serves the requirements of
global institutional investors, including pension funds, public retirement
funds, endowments and foundations for custodial, trust, settlement,
safekeeping, portfolio reporting, performance evaluation and investment fund
services.
While Chase is already a significant provider of securities processing
services, having particular strength in global custody, the acquisition of the
Chase Acquired Business will allow GSS to expand its presence in certain
areas, including mutual fund accounting, administration, and mutual fund
transfer agency services. Chase expects that by increasing GSS's volume,
expanding its product range and reducing average costs, the Merger will
enhance the ability of GSS and other Chase units to provide custody and other
securities processing services to clients throughout the world.
Terms of the Merger
The Merger
At the Effective Time, UST and Chase will consummate the Merger in which
UST will be merged with and into Chase. Chase will be the Surviving
Corporation in the Merger, and the separate existence of UST will cease.
Certificate of Incorporation and Bylaws
The Merger Agreement provides that the restated certificate of
incorporation of Chase (the "Chase Certificate of Incorporation") at the
Effective Time will be the restated certificate of incorporation of the
Surviving Corporation until thereafter changed or amended in accordance with
applicable law. The bylaws of Chase (the "Chase Bylaws") in effect at the
Effective Time will be the bylaws of the Surviving Corporation until
thereafter changed or amended in accordance with applicable law.
Directors and Officers
The directors of Chase at the Effective Time will be the directors of the
Surviving Corporation, each to hold office until the earlier of his or her
resignation or removal or until his or her successor is duly elected and
qualified. The officers of Chase at the Effective Time will be the officers of
the Surviving Corporation, each to
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hold office until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified. The current executive
officers of UST will not be employed by the Surviving Corporation following
the Merger.
Conversion of UST Common Stock in the Merger
Pursuant to the Merger Agreement, at the Effective Time, each issued and
outstanding share of UST Common Stock (other than any shares of UST Common
Stock owned by Chase or any wholly owned subsidiary of Chase or UST (other
than in a fiduciary, custodial or similar capacity) and any shares of UST
Common Stock owned by Dissenting Holders) will be converted into the right to
receive the Conversion Number of fully paid and nonassessable shares of Chase
Common Stock. The Conversion Number will be equal to the fraction of (a)
$363,500,000, divided by (b) the product of (i) the greater of (A) the Average
Value of Chase Common Stock and (B) $31.00, multiplied by (ii) the number of
shares of UST Common Stock outstanding immediately prior to the Effective
Time. The term "Average Value of Chase Common Stock" means the 10-day average
of the daily average of the high and low sale prices for Chase Common Stock
reported on the NYSE Tape. If the Average Value of Chase Common Stock is
$31.00 or less per share, then the aggregate number of shares of Chase Common
Stock to be issued in the Merger will be fixed at 11,725,806. Moreover, if the
market value of Chase Common Stock on the Closing Date is less than the
greater of the Average Value of Chase Common Stock and $31.00, then the value
on the Closing Date of the aggregate consideration received by UST
stockholders in the Merger will be less than $363,500,000. The number of
shares of Chase Common Stock to be issued in the Merger will be determined as
of the Closing Date, which date will be after the date of the Special Meeting.
For example, if the Average Value of Chase Common Stock were $34.875, the
Conversion Number (assuming 9,622,000 shares of UST Common Stock were
outstanding immediately prior to the Effective Time) would be 1.083 shares of
Chase Common Stock per share of UST Common Stock. If the Average Value of
Chase Common Stock were $31.00 or less, the Conversion Number (assuming
9,622,000 shares of UST Common Stock were outstanding immediately prior to the
Effective Time) would be 1.219 shares of Chase Common Stock per share of UST
Common Stock.
So long as the Average Value of Chase Common Stock is equal to or greater
than $31.00, if the market value of Chase Common Stock on the Closing Date is
equal to such Average Value of Chase Common Stock, the value received by UST
stockholders in the Merger will be $37.78 per share of UST Common Stock
(assuming 9,622,000 shares of UST Common Stock are outstanding immediately
prior to the Effective Time). If the Average Value of Chase Common Stock is
less than $31.00, UST stockholders will receive 1.219 shares of Chase Common
Stock per share of UST Common Stock. The actual value on the Closing Date of
the Chase Common Stock received by UST stockholders will be equal to (i) the
number of shares of Chase Common Stock issued in the Merger multiplied by (ii)
the market value of Chase Common Stock on the Closing Date.
Under the terms of the Merger Agreement, UST does not have the right to
decline to consummate the Merger solely because the Average Value of Chase
Common Stock or the market value of Chase Common Stock immediately prior to
the Effective Time is substantially less than $31.00. Therefore, if the Merger
is authorized and all other conditions to the Merger are satisfied or waived
on or prior to the Effective Time, UST stockholders will assume the risk of a
decline in Chase Common Stock below $31.00 per share from and after the date
of the Special Meeting. See "The Merger -- Conditions -- Conditions of
Obligations of UST".
As of the Record Date, 9,489,309 shares of UST Common Stock were
outstanding. The number of shares of UST Common Stock outstanding at the
Effective Time is subject to change as a result of the exercise of stock
options and the issuance of shares of UST Common Stock, if any, in connection
with any acquisitions completed by UST prior to the Closing Date. UST has no
present plan to make any acquisitions in which UST Common Stock would be
issued. See "The Merger -- Conduct of Business Prior to the Effective Time".
Neither UST nor Chase intends to acquire any shares of UST Common Stock prior
to the Effective Time.
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Cash in Lieu of Fractional Shares
No fractional shares of Chase Common Stock will be issued in the Merger.
The Merger Agreement provides that each UST stockholder who otherwise would
have been entitled to receive a fractional share of Chase Common Stock will be
entitled to receive, in lieu thereof, an amount in cash equal to such fraction
multiplied by the average of the high and low sale prices for Chase Common
Stock on the business day immediately preceding the Closing Date, as reported
on the NYSE Tape.
Effective Time; Closing
The Merger will become effective and the Effective Time will occur
immediately following the Distribution, upon the filing of a certificate of
merger (the "Certificate of Merger") by the Department of State of New York
and with the Secretary of State of Delaware or at such time thereafter as is
provided in the Certificate of Merger. The Merger Agreement provides that the
closing of the Merger (the "Closing") will take place on the first business
day after the end of the first month ending (i) after April 15, 1995, and (ii)
more than two business days after satisfaction of the conditions to the Merger
Agreement, unless another date is agreed to in writing by UST and Chase. See
"-- Conditions".
Exchange of Certificates in the Merger
As soon as practicable after the Effective Time, Chase will cause the
Exchange Agent (as defined in the Merger Agreement) to mail to each holder of
record of a certificate or certificates before the Effective Time representing
outstanding shares of UST Common Stock (the "Certificates") (i) a Letter of
Instruction for use in effecting the surrender of Certificates in exchange for
certificates representing shares of Chase Common Stock and (ii) a form of
letter of transmittal to accompany Certificates transmitted to the Exchange
Agent. UST STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR
EXCHANGE UNTIL SUCH LETTER OF INSTRUCTION IS RECEIVED. Until surrendered, each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive a certificate representing that number of whole
shares of Chase Common Stock into which the shares of UST Common Stock
formerly represented by such Certificate were converted in the Merger and a
cash payment in lieu of any fractional shares of Chase Common Stock. The
holders of Certificates will not be entitled to receive dividends or other
distributions declared or made after the Effective Time with respect to Chase
Common Stock until such Certificates are surrendered and no cash payment with
respect to fractional shares will be paid to any such holder until such
surrender. There will be paid to the record holder of the Chase Common Stock
issued in exchange for each Certificate, without interest, (i) at the time of
such surrender, the amount of cash payable in lieu of any fractional shares of
Chase Common Stock to which such holder is entitled and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore previously paid with respect to such whole shares of Chase Common
Stock and (ii) at the appropriate payment date, the amount of dividends or
other distributions payable with respect to such whole shares of Chase Common
Stock with a record date after the Effective Time but prior to such surrender.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
the parties thereto. The Merger Agreement includes representations and
warranties by UST as to: the corporate organization of UST and its
subsidiaries and the Chase Acquired Company To Be Merged; the capitalization
of UST; the authorization of the Merger Agreement, the Distribution Agreement,
the Contribution Agreement, the Post Closing Covenants Agreement and the Tax
Allocation Agreement (the Distribution Agreement, the Contribution Agreement,
the Post Closing Covenants Agreement and the Tax Allocation Agreement are
referred to herein collectively as, the "Distribution Documents"); required
consents and approvals; the noncontravention of any agreement, law or charter
or bylaw provision by the Merger Agreement, the Distribution Agreement, the
other Distribution Documents and the consummation by UST of the transactions
contemplated thereby; the absence of the need, except as specified in the
Merger Agreement, for governmental consents to the Merger to be obtained by
UST or any of its subsidiaries; the accuracy of UST's reports and financial
statements filed with the Commission and the accuracy of information supplied
by UST for use in
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this Proxy Statement-Prospectus and the Information Statement attached as
Appendix H hereto; the absence of certain changes or events having a material
adverse effect on the Chase Acquired Business; pending or threatened
litigation against UST; absence of certain agreements with bank regulators;
compliance by the Chase Acquired Business with applicable laws; obligations to
brokers and finders; the assets, liabilities and customer agreements of the
Chase Acquired Business; the absence of undisclosed liabilities of, and of
material adverse changes or events relating to, the Chase Acquired Business;
the absence of certain changes to, and the terms, existence, operations,
liabilities and compliance with applicable laws of, UST's employee benefit
plans; the lack of labor controversies relating to UST; the non-applicability
of Section 912 of the NYBCL to the Merger Agreement, the Distribution
Agreement, and the other Distribution Documents and the transactions
contemplated thereby; the fact that the Merger Agreement and the Distribution
Agreement and the transactions contemplated thereby will not result in Chase
becoming an "Acquiring Person" or in a "Triggering Event" or "Distribution
Date" occurring under the UST Rights Plan (as defined in "Conduct of the
Business prior to the Effective Time; Certain Covenants -- UST Rights Plan");
the rights of the Chase Acquired Company To Be Merged in certain intellectual
property; certain tax matters; the preparation and accuracy of the Chase
Acquired Business balance sheets; the books of account of the Chase Acquired
Business; the filing by UST and its subsidiaries of all necessary government
reports; the condition, title and adequacy of certain properties held by the
Chase Acquired Business; the condition of accounts of UST's investment company
customers and the compliance by UST with governmental filing requirements
applicable to investment company customers; certain information relating to
customers of the Chase Acquired Business; certain matters relating to unit
investment trusts; and certain internal control standards maintained by the
Chase Acquired Company To Be Merged.
The Merger Agreement also includes representations and warranties by
Chase as to: the corporate organization of Chase; the capitalization of Chase;
the authorization of the Merger Agreement; required consents and approvals;
the noncontravention of any agreement, law or charter or bylaw provision by
the Merger Agreement and the consummation by Chase of the transactions
contemplated thereby; the absence of the need, except as specified in the
Merger Agreement, for governmental consents to the Merger to be obtained by
Chase; the accuracy of Chase's reports and financial statements filed with the
Commission; the accuracy of information supplied by Chase for use in this
Proxy Statement-Prospectus and the Information Statement attached as Appendix
H hereto; the absence of certain changes or events having a material adverse
effect on Chase; pending or threatened litigation against Chase; absence of
certain agreements with bank regulators; compliance by Chase with applicable
laws; the absence of receipt of any governmental notification preventing
consummation of the Merger; the absence of a requirement for approval of the
Merger by Chase stockholders; and obligations to brokers and finders.
Conduct of Business Prior to the Effective Time; Certain Covenants
Covenants of UST
Pursuant to the Merger Agreement UST has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except for the
Distribution and the other transactions expressly provided for in the
Distribution Agreement and the Contribution Agreement, and except as expressly
contemplated or permitted by the Merger Agreement or consented to by Chase in
writing:
(a) UST and its subsidiaries will each carry on the Chase Acquired
Business in the usual, regular and ordinary course consistent with past
practice and use its reasonable efforts to preserve intact the present
business organization, keep available, consistent with past practice, the
services of prospective employees of the Chase Acquired Business
following the Merger and preserve the relationships with customers,
suppliers and others having business dealings with the Chase Acquired
Business.
(b) Subject to certain specified exceptions, UST will not, nor will
it permit any subsidiaries of the Chase Acquired Company To Be Merged to,
nor will UST propose to, (i) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock (other than phantom share units required to be issued under
any of UST's benefit plans) or (ii) other than in connection with the
exercise of stock options
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outstanding as of the date of the Merger Agreement under any of UST's
benefit plans, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any shares of
capital stock of UST or any of its subsidiaries.
(c) Subject to certain specified exceptions, the Chase Acquired
Company To Be Merged will not issue, transfer or sell, or authorize or
propose or agree to the issuance, transfer or sale by any of its
subsidiaries of, any shares of its capital stock of any class or other
equity interests or any securities convertible into, or any rights,
warrants, calls, subscriptions, options or other rights or agreements,
commitments or understandings to acquire, any such shares equity
interests or convertible securities.
(d) UST will not, nor will it permit any subsidiaries of the Chase
Acquired Company To Be Merged to, amend or propose to amend its
Certificate of Incorporation or Bylaws.
(e) The Chase Acquired Company To Be Merged will not (i) acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of,
or by any other manner, any business or any corporation or other business
organization that would be directly or indirectly acquired by Chase in
the Merger, (ii) consummate any acquisition within three business days
before or one business day after the Closing Date, or (iii) make any
other investment in any person that would be directly or indirectly
acquired by Chase in the Merger except for investments by the Chase
Acquired Company To Be Merged in its existing wholly owned subsidiaries
and investments made in the ordinary course of business consistent with
past practices in an aggregate amount not exceeding $250,000.
(f) The Chase Acquired Company To Be Merged will not sell, lease or
otherwise dispose of, or agree to sell, lease or otherwise dispose of,
any of the assets of the Chase Acquired Business other than in the
ordinary course of business consistent with past practice and the sale or
other disposition of obsolete equipment.
(g) Subject to certain specified exceptions (including indebtedness
to be assumed by Spinco) the Chase Acquired Company To Be Merged will not
incur (which will not be deemed to include (i) certain refinancing
transactions or (ii) deposits accepted in the ordinary course of
business) any indebtedness for borrowed money or any obligation evidenced
by a promissory note or other instrument or guarantee any such
indebtedness or obligation or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Chase Acquired
Company To Be Merged or any of its subsidiaries or guarantee any
obligations of others.
(h) Except as otherwise provided in or contemplated by the Merger
Agreement, the Distribution Agreement or the Contribution Agreement, and
subject to certain specified exceptions, UST will not, nor will it permit
any of its subsidiaries to (i) adopt any benefit plan or amend any
benefit plan other than a Retained Plan (as defined under "Effect of
Transactions on UST Employees and UST Benefit Plans" below) to the extent
such adoption or amendment (x) would create or increase any liability or
obligation on the part of UST or any of its subsidiaries that will not
either (A) be fully performed or satisfied prior to the Effective Time or
(B) be assumed by Spinco or New Trustco pursuant to the Contribution
Agreement or the Distribution Agreement, or (y) would increase the number
of shares of UST Common Stock (if any) to be issued under such benefit
plan or (ii) amend any Retained Plan in any manner that would increase
the liabilities or obligations of UST or any of its subsidiaries under
such Retained Plan or would increase the number of shares of UST Common
Stock to be issued under such Retained Plan; or (iii) except for normal
increases in the ordinary course of business consistent with past
practice, increase the base salary of any prospective employee of the
Chase Acquired Business.
(i) Notwithstanding the fact that such action might otherwise be
permitted under the Merger Agreement, the Chase Acquired Company To Be
Merged will not take any action that would or is reasonably likely to
result in any of the conditions to the Merger not being satisfied or
would materially impair the ability of UST to consummate the Distribution
or the Merger or USTNY to consummate the transactions contemplated by the
Contribution Agreement in accordance with the respective terms thereof or
materially delay such consummation.
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(j) UST will promptly advise Chase orally and in writing of any
change or development or combination of changes or developments that
would cause its representation regarding agreements with bank regulators
to be untrue. UST will, subject to certain exceptions, promptly provide
Chase (or its counsel) copies of all filings made by UST or any of its
subsidiaries with any Federal, state or foreign governmental entity in
connection with the Merger Agreement, the Distribution Agreement, the
Contribution Agreement and the transactions contemplated thereby.
(k) The Chase Acquired Company To Be Merged will not change any of
its accounting principles, policies or procedures, except such changes as
may be required by generally accepted accounting principles.
(l) UST will (i) furnish all information required in connection with
approvals of or filings with bank regulators and other governmental
entities in order to organize Spinco as a bank holding company and New
Trustco as a bank and trust company, (ii) not engage in or allow
transfers of assets or liabilities or engage or enter into other
transactions between the Chase Acquired Company To Be Merged, on the one
hand, and Spinco and its subsidiaries, on the other hand, except as
contemplated by the Merger Agreement, the Distribution Agreement, the
Contribution Agreement and the agreements referred to therein, and (iii)
not terminate or amend, or waive compliance with any obligations under,
the Distribution Agreement, the Contribution Agreement or any of the
agreements referred to therein.
(m) UST will not, and will not permit any of its subsidiaries to,
create certain liens relating to the Processing Business.
(n) The Chase Acquired Company To Be Merged will not (i) enter into
other than in the ordinary course of business, any material contract
relating to the Acquired Contribution Assets or Assumed Contribution
Liabilities (each as defined under "-- Terms of the Contribution
Agreement" below) that cannot be assigned, free of liability to the Chase
Acquired Company To Be Merged, to Spinco or one of its subsidiaries in
connection with the transactions contemplated in the Distribution
Agreement and Contribution Agreement; or (ii) enter into, terminate, or
modify in any material respect certain material contracts or certain
customer agreements other than in the ordinary course of business
consistent with past practice and, in the case of such customer
agreements, without consultation with Chase. In addition, UST will notify
Chase in writing at least 30 days before making, or in any way becoming
committed to make, any capital expenditure, or series of related capital
expenditures relating to the Chase Acquired Business in excess of
$50,000.
UST has also agreed that, during the period from the date of the Merger
Agreement and continuing to the Effective Time, as to itself and its
subsidiaries, except as Chase shall otherwise agree in writing or as provided
in the Merger Agreement and the Distribution Documents:
(a) UST will not and will not permit its subsidiaries to make
certain changes in the lines of business engaged in by (i) the Chase
Acquired Company To be Merged or any of its subsidiaries as of the date
of the Merger Agreement or (ii) UST and any of its subsidiaries as of the
date of the Merger Agreement.
(b) UST will not, and will not permit any of its subsidiaries to,
take any action, including, without limitation, with respect to the terms
of the Certificate of Incorporation or Bylaws of Spinco, that would or is
reasonably likely to result in any of the conditions to the Merger not
being satisfied or that would materially impair the ability of UST to
consummate the Distribution in accordance with the terms of the
Distribution Agreement or the Merger in accordance with the terms of the
Merger Agreement or would materially delay such consummation or that
would disqualify the Distribution as a tax-free spin-off within the
meaning of Section 355 of the Code.
(c) UST will, or will cause its subsidiaries to, redeem or effect an
in substance defeasance of the 8 1/2% Capital Notes due 2001 (the
"Capital Notes") of USTNY and the 8% Notes due 1996 of UST.
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(d) UST will furnish to Chase certain periodic financial information
budgets, accountants' reports, benefit plan information and ERISA
information.
(e) UST will cause Spinco and New Trustco to execute and deliver the
Post Closing Covenants Agreement and the Services Agreement on the
Closing Date.
Covenants of Chase
Pursuant to the Merger Agreement, Chase has agreed that, during the
period from the date of the Merger Agreement until the Effective Time:
(a) Chase will not take any action that would or is reasonably
likely to result in any of the conditions to the Merger not being
satisfied or that would materially impair the ability of Chase to
consummate the Merger in accordance with the terms of the Merger
Agreement or materially delay such consummation and Chase will, subject
to certain exceptions, promptly provide UST (or its counsel) copies of
all filings made by Chase with any Federal, state or foreign governmental
entity in connection with the Merger Agreement and the transactions
contemplated thereby.
(b) Chase will not split, combine or reclassify any of the Chase
Common Stock or authorize the (i) making of any in-kind distribution or
extraordinary cash dividend with respect to the Chase Common Stock, or
(ii) issuance of any other securities in respect of or in exchange for
shares of the Chase Common Stock, provided the foregoing will not
prohibit the issuance of securities of Chase securities convertible into
Chase Common Stock.
(c) Chase will not, and will not permit any of its subsidiaries to,
take or cause or permit to be taken, any action that would disqualify the
Distribution as a tax-free spin-off within the meaning of Section 355 of
the Code.
(d) Notwithstanding the fact that such action might otherwise be
permitted by the Merger Agreement, Chase will not, nor will it permit any
of its subsidiaries to, take any action that would or could reasonably be
expected to result in the failure to satisfy any of the conditions to the
Merger, would materially impair the ability of Chase to consummate the
Merger in accordance with the terms of the Merger Agreement or materially
delay such consummation.
(e) Chase will execute and deliver the Post Closing Covenants
Agreement and will cause CMB to execute and deliver the Services
Agreement on the Closing Date.
Covenants of UST and Chase
The Merger Agreement provides that, during the period from the date of
the Merger Agreement and continuing until the Effective Time:
(a) UST and Chase will not, and will not permit any of their
respective subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in the Merger Agreement that are
qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue
in any material respect, or (iii) the failure to satisfy any of the
conditions to the Merger.
(b) UST and Chase will promptly advise the other party orally and in
writing of any change or event having, or which, insofar as can
reasonably be foreseen, would have, a material adverse effect on such
party and its subsidiaries taken as a whole.
(c) For purposes of certain tax opinions to be delivered pursuant to
the Merger Agreement, each of Chase and UST will deliver to O'Melveny &
Myers, counsel to Chase, and to Cravath, Swaine & Moore, counsel to UST,
representation letters substantially in the form of the respective
letters provided for by the Merger Agreement, dated as of the Closing
Date.
(d) Chase and UST will negotiate and within 60 days after the date
of the Merger Agreement agree on a definitive form of the Services
Agreement substantially in accordance with the terms of the Services
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Agreement Term Sheet entered into by UST and Chase in connection with the
execution of the Merger Agreement (the "Services Agreement Term Sheet").
UST and Chase agreed on January 18, 1995, to extend the date for
agreement on a definitive form of Services Agreement to February 28,
1995.
(e) Chase and UST will each use reasonable efforts to negotiate and
to agree upon, and to cause CMB and USTNY to agree upon, and to execute
and deliver, an agreement providing for the Bank Merger under 12 U.S.C.
215a and applicable law (the "CMB Bank Merger Agreement"), provided,
however, that the CMB Bank Merger Agreement will provide that
consummation of the Bank Merger is conditioned on occurrence of the
Merger and that USTNY and its affiliates will incur no additional
liability or expense in connection therewith.
UST Rights Plan
In connection with and prior to the execution of the Merger Agreement,
UST amended its Rights Agreement, dated as of January 26, 1988, as amended
(the "UST Rights Agreement"), between UST and First Chicago Trust Company of
New York, as Rights Agent, to provide, among other things, that neither Chase
nor any of its affiliates or associates will be deemed to be an "Acquiring
Person" (as defined in the UST Rights Agreement) and no "Distribution Date" or
"Triggering Event" (each as defined in the UST Rights Agreement) will occur as
a result of the Merger or the transactions contemplated thereby.
Certain Regulatory Approvals
The regulatory approvals and consents necessary to consummate the Merger,
the Distribution and certain related transactions include the approval of the
Board of Governors of the Federal Reserve System, the FDIC, the OCC, the
Office of Thrift Supervision and the New York State Banking Board. Each of
Chase, UST and Spinco expect to file applications with the applicable
regulatory authorities during February 1995. There can be no assurance that
such regulatory approvals will be obtained at all or in a timely manner to
permit consummation of the Merger. The Merger Agreement may be terminated by
UST or Chase if all requisite regulatory approvals have not been obtained, and
all applicable waiting periods have not expired, by November 18, 1995. In
considering the applications, the regulatory authorities are required to
assess whether the Merger would have significant adverse effects on
competition, the financial and managerial resources and future prospects of
Chase and Spinco, and whether the proposed transactions would further the
convenience and needs of the communities to be served by the resulting
institutions. In connection with the assessment of whether the Merger will
serve community convenience and needs, the Community Reinvestment Act ("CRA")
provides that the federal banking agencies shall consider the record of
depository institution subsidiaries of a holding company in meeting the credit
needs of their communities, including low- and moderate-income neighborhoods,
consistent with safe and sound operation. UST, Chase and their respective bank
subsidiaries have been determined by their respective federal banking
regulators to have attained satisfactory or better records of performance
under the CRA. In connection with applications filed recently by Chase with
respect to certain internal reorganizations of Chase, Inner City
Press/Community on the Move, a community group located in the Bronx, New York,
has filed a protest alleging that CMB and Chase failed to meet their
obligations under the CRA. Chase has filed responses with the appropriate
agencies. It is possible that this group or another will submit a protest
under the CRA in connection with the applications filed for approval of the
transactions. Such a protest might delay approval of the transactions by the
regulatory authorities. There can also be no assurance that any regulatory
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement.
There can likewise be no assurance that other regulatory bodies will not
challenge the Merger or, if such a challenge is made, as to the result
thereof.
Stock Exchange Listing
Chase has agreed in the Merger Agreement to use its best efforts to cause
the shares of Chase Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date. Such approval for listing on the NYSE is a condition to each of
UST's and Chase's obligation to consummate the Merger. See
"-- Conditions -- Conditions to Each Party's Obligation to Effect the Merger"
below.
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Conditions
Conditions of Obligation of UST and Chase
The Merger Agreement provides that the respective obligation of each
party to effect the Merger is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) The Merger Agreement shall have been approved and adopted by the
affirmative vote of two-thirds (or 66 2/3%) of the total number of votes
entitled to be cast at the Special Meeting; (b) the shares of Chase
Common Stock issuable to UST stockholders pursuant to the Merger
Agreement shall have been approved for listing on the NYSE, subject to
official notice of issuance; (c) each of Chase and UST shall have
obtained all requisite approvals of, or satisfying all requisite filing
requirements with, bank regulators and other governmental entities,
including all requisite approvals under, and the expiration of all
waiting periods in respect of, the Bank Holding Company Act of 1956,
provided, no such approvals shall impose any condition or restriction
upon Chase or Spinco, or any of their respective subsidiaries, including,
without limitation, any requirement to raise additional capital or to
dispose of assets, which would so materially adversely impact the
economic or business benefits of the transactions contemplated by the
Merger Agreement and the Distribution Agreement as to render inadvisable
the consummation of the Merger or the Distribution; (d) (i) no temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect
and (ii) no action, suit or other proceeding shall be pending or, to the
knowledge of UST and Chase, threatened by any governmental entity that,
if successful, would restrict or prohibit the consummation of the
transactions contemplated by the Merger Agreement or the Distribution
Documents; (e) New Trustco, USTNY and Chase shall have entered into the
Services Agreement; (f) the Chase Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order; and (g) the
Distribution shall have become effective in accordance with the terms of
the Distribution Agreement, the Contribution Agreement and each of the
agreements contemplated thereby.
Conditions of Obligation of Chase
The obligation of Chase to effect the Merger is further subject to the
following conditions, unless waived by Chase:
(a) The representations and warranties of UST set forth in the
Merger Agreement that are qualified as to materiality shall be true and
correct, and the representations and warranties of UST set forth in the
Merger Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of the Merger
Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by the Merger Agreement,
except to the extent that any representation or warranty is made as of a
specific date, in which case such representation and warranty shall be
true and correct as of such date. UST shall have delivered to Chase a
certificate (the "UST Bring Down Certificate"), dated as of the Closing
Date and reasonably satisfactory in form to Chase, setting forth each
event that has occurred and each condition that exists that (i) had not
occurred or was not in existence as of the date of the Merger Agreement
and (ii) if it had occurred or was in existence as of the date of the
Merger Agreement would be required to be disclosed pursuant to certain
representations and warranties of UST contained in the Merger Agreement.
In determining the materiality of the failure of any representation or
warranty made by UST to be true when made, the parties will consider
whether the failure can be remedied by a financial indemnity, whether
Spinco or New Trustco is obligated under the Post Closing Covenants
Agreement to indemnify against the failure, and the financial ability of
Spinco or New Trustco, as appropriate, to satisfy any indemnification
obligation.
(b) UST shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement and
the Distribution Agreement at or prior to the Closing Date.
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(c) The Service shall have issued and not revoked the Private Letter
Ruling, reasonably satisfactory in form and substance to Chase
substantially to the effect that, on the basis of the facts,
representations, and assumptions existing at the Effective Time:
(i) the contribution by USTNY to New Trustco of certain assets
and the assumption of certain liabilities of USTNY by New Trustco, as
contemplated in the Contribution Agreement, qualifies for Federal
income tax purposes as a tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Code or as tax-free under Section 351 of
the Code;
(ii) the distribution of all the capital stock of New Trustco to
UST by USTNY, as contemplated by the Distribution Agreement, is
tax-free for Federal income tax purposes to USTNY under Section 361(a)
of the Code and to UST under Section 355(a) of the Code;
(iii) the contribution by UST to Spinco of certain assets
(including, without limitation, all of the capital stock of New
Trustco) and the assumption of certain liabilities of UST by Spinco,
as contemplated by the Distribution Agreement, qualifies for Federal
income tax purposes as a tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Code or as tax-free under Section 351 of
the Code; and
(iv) the distribution of the stock of Spinco on a pro rata basis
to the holders of UST Common Stock is tax-free for Federal income tax
purposes to UST under Section 361(a) of the Code and to UST's
stockholders under Section 355(a) of the Code.
(d) Chase shall have received an opinion dated the Closing Date of
Cravath, Swaine & Moore, counsel to UST, and/or in-house counsel of UST,
satisfactory to counsel to Chase, with respect to, among other things,
the valid existence and good standing of UST and USTNY, the authority of
UST and USTNY to execute the Merger Agreement and the Distribution
Documents, the execution and enforceability of such agreements and the
satisfaction by UST and USTNY of certain Federal and New York law
requirements.
(e) Whether or not any event or change is reflected in the UST Bring
Down Certificate, since September 30, 1994, there shall have been no
material adverse change, and no event that could reasonably be expected
to result in a material adverse change, to the business, properties,
assets, results of operations, or financial condition of MF Service
Company or the Chase Acquired Company To Be Merged, each taken as a
whole. For these purposes, "material adverse change" does not include (i)
any adverse change resulting from economic or market conditions generally
affecting businesses engaged in the same or substantially similar
activities as the Chase Acquired Company To Be Merged or (ii) any adverse
change resulting directly from any action taken by Chase or any
subsidiary of Chase except an action specifically permitted or
contemplated by the Merger Agreement (including the Bank Merger). The
Merger Agreement does not include a definition of "material adverse
change". The determination of whether a material adverse change has
occurred, or is the result of general economic or market conditions or
otherwise, is dependent upon specific facts and circumstances.
(f) Shares owned by Dissenting Holders (as defined under
"Dissenters' Rights" below) will not constitute more than 5% of the
aggregate number of outstanding shares of UST Common Stock.
(g) Each of the Distribution Documents shall have been executed
substantially in the forms attached as Exhibits to the Merger Agreement
or to the Contribution Agreement or, if not included as Exhibits, in the
form mutually agreed to by the parties thereto and Chase.
(h) Chase shall have received an opinion, based on the
representation letters to be delivered by UST and Chase pursuant to the
Merger Agreement, of O'Melveny & Myers, counsel to Chase, to the effect
that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
Chase and UST will each be a party to that reorganization within the
meaning of Section 368(b) of the Code.
(i) Since the effective date of the Chase Registration Statement, no
event with respect to UST, any subsidiary of UST or any security holder
of UST shall have occurred which should have been set forth in
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an amendment to the Chase Registration Statement or a supplement to this
Proxy Statement-Prospectus that has not been set forth in such an
amendment or supplement.
(j) UST shall have delivered letters regarding Rule 145 under the
Securities Act, executed by each affiliate of UST who will acquire shares
of Chase Common Stock in connection with the Merger.
(k) UST's core trust and custody software system utilized by USTNY
in the Processing Business and in its other businesses (the "Asset
Management System") shall comply with material regulatory requirements
and certain other software modifications shall have been completed in all
material respects.
Conditions of Obligation of UST
The Merger Agreement provides that the obligation of UST to effect the
Merger is further subject to the following conditions, unless waived by UST:
(a) The representations and warranties of Chase set forth in the
Merger Agreement that are qualified as to materiality shall be true and
correct, and the representations and warranties of Chase set forth in the
Merger Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of the Merger
Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by the Merger Agreement.
Chase shall have delivered to UST a certificate (the "Chase Bring Down
Certificate"), dated as of the Closing Date and reasonably satisfactory
in form to UST, setting forth each event that has occurred and each
condition that exists that (i) had not occurred or was not in existence
as of the date of the Merger Agreement and (ii) if it had occurred or was
in existence as of the date of the Merger Agreement would be required to
be disclosed pursuant certain representations and warranties of Chase
contained in the Merger Agreement.
(b) Chase shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at
or prior to the Closing Date.
(c) The Service shall have issued and not revoked the Private Letter
Ruling reasonably satisfactory in form and substance to UST.
(d) UST shall have received an opinion dated the Closing Date of
O'Melveny & Myers, counsel to Chase, and/or in-house counsel of Chase,
satisfactory to counsel to UST, with respect to, among other things, the
valid existence and good standing of Chase, the authority of Chase to
execute the Merger Agreement and the transactions contemplated thereby,
the execution and enforceability of the Merger Agreement and the
transactions contemplated thereby and the satisfaction by Chase of
certain Federal and New York law requirements.
(e) Whether or not any event or change is reflected in the Chase
Bring Down Certificate, since September 30, 1994, there shall have been
no material adverse change, and no event that could reasonably be
expected to result in a material adverse change, to the business,
properties, assets, results of operations or financial condition of Chase
and its subsidiaries taken as a whole; provided, that "material adverse
change" for this purpose does not include (i) any adverse change
resulting from economic or market conditions generally affecting
businesses engaged in the same or substantially similar activities as
Chase and its subsidiaries or (ii) any adverse change resulting directly
from any action taken by UST or any subsidiary of UST except an action
specifically permitted or contemplated by the Merger Agreement (including
the Bank Merger). The Merger Agreement does not include a definition of
"material adverse change". The determination of whether a material
adverse change has occurred, or is the result of general economic or
market conditions or otherwise, is dependent upon specific facts and
circumstances. In addition, the Merger Agreement does not provide that
UST can decline to consummate the Merger solely because the Average Value
of Chase Common Stock or the market value of Chase Common Stock
immediately prior to the Effective Time is substantially less than
$31.00.
(f) UST shall have received an opinion, based on the representation
letters to be delivered by UST and Chase pursuant to the Merger
Agreement, of Cravath, Swaine & Moore, counsel to UST, to the effect that
the Merger will be treated for Federal income tax purposes as a
reorganization within the
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meaning of Section 368(a) of the Code, and that Chase and UST will each
be a party to that reorganization within the meaning of Section 368(b) of
the Code.
(g) Since the effective date of the Chase Registration Statement, no
event with respect to Chase, any subsidiary of Chase or any security
holder of Chase shall have occurred which should have been set forth in
an amendment to the Chase Registration Statement or a supplement to this
Proxy Statement-Prospectus that has not been set forth in such an
amendment or supplement.
(h) Each of the Distribution Documents shall have been executed
substantially in the forms attached as Exhibits to the Merger Agreement
or to the Contribution Agreement or, if not included as Exhibits, in the
form mutually agreed to by the parties thereto and Chase.
Termination; Amendment and Waiver
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement
by the stockholders of UST: (a) by mutual written consent of Chase and UST or
(b) by either Chase or UST (i) if, upon a vote at a duly held stockholders'
meeting or any adjournment thereof, any required approval of the stockholders
of UST is not obtained, (ii) if the Merger has not been consummated on or
before the date one year following the date of the Merger Agreement, unless
the failure to consummate the Merger is the result of a wilful and material
breach of such agreement by the party seeking to terminate the Merger
Agreement; provided, however, that the passage of such period will be tolled
for any part thereof (but in no event for more than an additional 90 days)
during which any party is subject to a nonfinal order, decree, ruling or
action restraining, enjoining or otherwise prohibiting the consummation of the
Merger or the calling or holding of the UST stockholders' meeting or (iii) if
any governmental entity has issued an order, decree or filing or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable.
Effect of Termination; Termination Payment by UST
In the event of a termination of the Merger Agreement, the Merger
Agreement will forthwith become void and, except for certain obligations
provided for by the Merger Agreement, there will be no liability or obligation
on the part of UST or Chase; provided, that any such termination will not
relieve any party from liability for wilful breach of the Merger Agreement,
the Distribution Agreement, the Contribution Agreement or any of the
transactions contemplated thereby. If the Merger Agreement is terminated for
any reason other than by reason of the failure to satisfy certain conditions
set forth therein or due to a permanent injunction issued at the instance of
the United States Department of Justice or otherwise due to any default on the
part of Chase or failure of Chase to obtain all requisite approvals, UST will
pay to Chase, as liquidated damages, and not a penalty, the sum of (a)
$5,000,000, if such termination occurs on or before the date that proxy
statements relating to the Merger are first mailed to UST's stockholders, and
(b) $7,500,000, if the termination occurs after the date of such mailing. Such
$7,500,000 termination payment will be payable in the event the UST
stockholders fail to approve the Distribution or to authorize and adopt the
Merger Agreement.
Amendment
The Merger Agreement may be amended by the parties thereto at any time
before or after approval and authorization of the matters presented in
connection with the Merger by UST stockholders, but, after any such approval
or authorization, no amendment will be made which by law requires further
approval or authorization by UST stockholders without such further approval or
authorization. The Merger Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties thereto.
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<PAGE>
Extension; Waiver
At any time prior to the Effective Time, the parties to the Merger
Agreement may to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, (b) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto or (c) waive
compliance with any of the agreements or conditions contained therein. Each of
UST and Chase has indicated that it will not waive the condition to the Merger
requiring receipt of the Private Letter Ruling from the Service with respect
to the tax-free nature of the Distribution and the Internal Reorganization.
See "Certain Federal Income Tax Consequences -- Consequences of the Merger".
Expenses
The Merger Agreement provides that, whether or not the Merger is
consummated, all fees and expenses incurred in connection with the Merger, the
Distribution, the Merger Agreement, the Distribution Agreement and each of the
transactions contemplated thereby will be paid by the party incurring such
fees and expenses, except that expenses incurred in connection with printing
and mailing this Proxy Statement-Prospectus (including the Appendices hereto)
will be shared equally by UST and Chase.
Accounting Treatment
The Merger will be accounted for by Chase as a "purchase" for financial
accounting purposes in accordance with generally accepted accounting
principles. The purchase price (i.e., the Merger consideration) will be
allocated based on the fair values of assets acquired and liabilities assumed.
Such allocations will be made based upon valuations and other studies that
have not been finalized. The excess of the purchase price over the amounts so
allocated will be allocated to goodwill.
Interests of Certain Persons in the Transactions
In considering the recommendations of the UST Board, UST stockholders
should be aware that UST's executive officers and members of the UST Board
will have certain interests in the Distribution and the Merger that are in
addition to the interests of UST stockholders generally.
The Merger will constitute a "change in control" of UST with respect to
all options then outstanding under the UST Option Plans (as defined under
"Effect of Transactions on UST Employees and UST Benefit Plans -- Retained
Plans" below) other than any incentive stock options granted under such plans
before October 27, 1987. Accordingly, the authorization and adoption of the
Merger Agreement by UST stockholders will, if the Merger is consummated, have
the following consequences with respect to such options:
(a) all such options that had not previously become vested will
become fully vested upon the consummation of the Merger;
(b) the holders of such options will become entitled, at the
Effective Time, to receive a cash payment (the "Cash Payment") with
respect to each of the holders' unexercised options, in an amount equal
to the excess of the "Determined Value" (as defined under "Effect of
Transactions on UST Employees and UST Benefit Plans -- Retained Plans"
below) over the exercise price under such options; and
(c) under the definition of "Determined Value," the amount of the
Cash Payment to be paid to the holders of such options could be greater
than the amount payable to them on the basis of the "Transaction Value"
(as defined under "Effect of Transactions on UST Employees and UST
Benefit Plans -- Retained Plans") for the shares of UST Common Stock
subject to such options (i.e., the amount that would be payable to such
holders based on the average trading prices for shares of Chase Common
Stock and Spinco Common Stock during the 10-day trading period preceding
the Closing Date) if the highest bid price for shares of UST Common Stock
at any time during the twelve-month period ending on the day preceding
the Closing Date were to exceed the Transaction Value (as defined below)
for the shares of UST Common Stock subject to such options.
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<PAGE>
As of December 31, 1994, options to purchase a total of 1,253,359 shares
of UST Common Stock, at prices ranging from $27.75 to $53.88 per share, were
held by 341 UST employees, who may become entitled to receive a Cash Payment
with respect to such options upon the consummation of the Merger. Of the
options so held, options to purchase a total of 441,054 shares, at prices
ranging from $30.75 to $53.88 per share, held by 341 employees, were unvested
at December 31, 1994, and may become vested as a result of the Merger. Set
forth below is a table showing, for each of UST's executive officers, the
total number of shares subject to options (vested and unvested) held by the
officer as of December 31, 1994, for which the officer may become entitled to
receive a Cash Payment upon the Merger, the range of exercise prices under
such options, and the number of such option shares that will not have become
vested prior to, but may become vested as a result of, the Merger.
<TABLE>
Range of No. of Option
Total No. of Exercise Price Shares to Vest
Name Option Shares Per Share on Merger
----------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
H. Marshall Schwarz...................... 93,500 $27.75 - $53.88 21,250
Jeffrey S. Maurer........................ 70,700 $27.75 - $53.88 17,250
Frederick B. Taylor...................... 56,450 $27.75 - $53.88 15,250
Donald M. Roberts........................ 41,000 $27.75 - $53.88 9,250
Frederick S. Wonham...................... 35,500 $30.75 - $53.88 9,250
------------- -------
Total.................................... 297,150 $27.75 - $53.88 72,250
========== ==========
</TABLE>
As of December 31, 1994, the members of the UST Board (excluding the
persons named in the table above), as a group, held options to purchase a
total of 66,650 shares of UST Common Stock, at prices ranging from $29.58 to
$51.60 per share, with respect to which the holders may become entitled to
receive a Cash Payment upon consummation of the Merger. Of the options so
held, options to purchase a total of 13,300 shares, at prices ranging from
$46.95 to $51.60 per share, held by four members of the UST Board, will not
have vested before, but may become vested as a result of, the Merger.
UST currently estimates that the aggregate amount of the Cash Payments to
be made with respect to unexercised stock options will be $39.1 million. See
note (1) to "Pro Forma Condensed Financial Statements -- Notes to Pro Forma
Condensed Financial Statements" in the Information Statement attached as
Appendix H hereto. That amount is based upon various assumptions, including
the Determined Value of the UST Common Stock, the estimated number of stock
options that will be exercised prior to the Closing Date and the exercise
price of the stock options that will remain outstanding as of the Closing
Date. As a result, the actual amount of the Cash Payment will not be known
until the Closing Date and, accordingly, there can be no assurance that the
assumptions used to estimate the cash payment will prove to be correct.
The Merger also will be deemed by the UST Board to constitute a "change
in control" as defined in, and for purposes of, the Annual Incentive Plan of
U.S. Trust Corporation (the "AIP"). Accordingly, the authorization and
adoption of the Merger Agreement will, if the Merger is consummated, result in
participants' previously accrued benefits under the AIP becoming immediately
payable at the Effective Time; and each participant in the AIP will be
entitled to receive an immediate cash payment in an amount equal to his or her
account balance under the plan.
As of December 31, 1994, 53 UST employees had account balances under the
AIP, in the aggregate amount of $7,215,596.40, that will become immediately
payable upon consummation of the Merger. The amounts of the account balances,
as of such date, that will become so payable in the case of UST's executive
officers named below (other than Mr. Schwarz who has no account balance under
the AIP) are as follows:
<TABLE>
<S> <C>
Jeffrey S. Maurer..................................... $ 146,734.88
Frederick B. Taylor................................... 109,038.24
Donald M. Roberts..................................... 1,168,285.29
Frederick S. Wonham................................... 211,424.24
-------------
Total....................................... $1,635,482.65
============
</TABLE>
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<PAGE>
The aggregate amount of the payments to be made with respect to the
account balances of all participants in the AIP has been accrued, and no
additional cost with respect to such payments is required to be reflected in
the "Pro Forma Condensed Financial Statements" in the Information Statement
attached as Appendix H hereto.
UST's 1989 Stock Compensation Plan provides for the award of long-term
incentive compensation to UST's senior officers in the form of performance
share units. The performance share units are earned over a three-year
"Performance Cycle" to the extent that pre-established performance goals for
UST are met. The performance goals for the cycles ending on December 31, 1995
and 1996 (the "1995 and 1996 Performance Cycles") were comprised of a formula
based on compound growth in UST's earnings per share and return on equity.
Because of the special circumstances occurring during the 1995 and 1996
Performance Cycles as a result of the Distribution and Merger, the UST Board
and its Compensation and Benefits Committee which administers the 1989 Stock
Compensation Plan have approved a recommendation by UST's management that if
the Merger is consummated, the performance goals established for the 1995 and
1996 Performance Cycles will be deemed to have been met in full, and that all
performance share units awarded to each UST officer for each of the 1995 and
1996 Performance Cycles will be deemed to be fully earned and payable to the
officer if he or she remains in employment with Spinco, New Trustco or their
affiliates until the end of such Performance Cycle or if he or she leaves such
employment before the end of such Performance Cycle as a result of retirement
or termination due to staff reductions associated with the Distribution and
the Merger. Set out below is a table showing, for each of UST's executive
officers, the number of performance share units awarded for the 1995 and 1996
Performance Cycles (adjusted to reflect additional performance share units
credited to the officers for dividends paid on UST Common Stock since the date
of the award) that will be deemed to be fully earned and payable to the
executive officer if UST stockholders authorize and adopt the Merger Agreement
and if the Merger is consummated.
<TABLE>
Performance Performance
Share Share
Units for Units for
Officer 1995 Cycle 1996 Cycle
-------------------------------------------- ----------- -----------
<S> <C> <C>
H. Marshall Schwarz......................... 6,592 6,274
Jeffrey S. Maurer........................... 4,472 4,232
Frederick B. Taylor......................... 3,736 3,551
Donald M. Roberts........................... 3,538 3,275
Frederick S. Wonham......................... 3,538 3,275
</TABLE>
UST currently estimates that the amount to be accrued with respect to
that part of the cost relating to these awards that is attributable to the
portions of the 1995 and 1996 Performance Cycles subsequent to the Closing
Date, will be $5.1 million for all UST senior officers as a group, and,
approximately $1.0 million in the aggregate for the Executive Officers listed
above. See note (1) to "Pro Forma Condensed Financial Statements -- Notes to
Pro Forma Condensed Financial Statements" in the Information Statement
attached as Appendix H hereto.
For further information concerning the award of performance share units,
see "Management -- Executive Compensation" in the Information Statement
attached as Appendix H hereto.
Two of UST's present executive officers, Donald M. Roberts and Frederick
S. Wonham, will be retiring effective as of the Closing Date. Upon such
termination of their employment, Messrs. Roberts and Wonham will each be
entitled to receive the following separation benefits: (a) an immediate
lump-sum cash severance payment, in an amount equal to $547,200 in the case of
Mr. Roberts, and $560,800 in the case of Mr. Wonham, and (b) payment of a
supplemental pension, in addition to the pension payable to them under USTNY's
Employees' Retirement Plan (the "Retirement Plan") and UST's Benefit
Equalization Plan. The cash severance payment to be made to Messrs. Roberts
and Wonham represents, for each of them, the sum of one year's base salary
($342,000), plus an amount ($205,200 in the case of Mr. Roberts, and $218,900
in the case of Mr. Wonham) equal to 4% of their present annual base salary for
each of their years of service (15 years in the case of Mr. Roberts, and 16
years in the case of Mr. Wonham) with UST. The supplemental pension payable to
Messrs. Roberts and Wonham, in each case, will be an amount equal to the
excess of
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<PAGE>
(x) the additional pension that would be payable to them under the Retirement
Plan's benefit formula if they had completed 25 years of service, over (y) the
additional pension that would be payable to them if they were entitled to
receive an additional pension under the Retirement Plan in an amount that is
actuarially equivalent to the service-based component ($205,200 in the case of
Mr. Roberts, and $218,900 in the case of Mr. Wonham) of the cash severance
payment to be made to them, after adjustment for taxes payable thereon. The
actuarial present value of the supplemental pensions payable to Messrs.
Roberts and Wonham are, respectively, $910,000 and $540,000.
Resales of Chase Common Stock Issued in the Merger; Affiliates
The Chase Common Stock to be issued to UST stockholders in connection
with the Merger will be freely transferable under the Securities Act, except
for shares issued to any person who may be deemed an "affiliate" of UST within
the meaning of Rule 145 under the Securities Act. In the Merger Agreement, UST
has agreed to use its best efforts to cause each of those persons who may be
deemed affiliates of UST to deliver to Chase on or prior to the Closing Date a
written agreement providing that such persons will not make any sale, transfer
or other disposition of the Chase Common Stock received in connection with the
Merger in violation of the Securities Act or the rules and regulations
promulgated thereunder. If any affiliate refuses to provide such an agreement,
Chase will be entitled to place appropriate legends on the Chase shares to be
received by such affiliates, and to issue stop transfer instructions to
Chase's transfer agent in regard to such shares. This Proxy
Statement-Prospectus does not cover any resales of Chase Common Stock received
by affiliates of UST, including certain family members and related interests.
Dissenters' Rights
The following summary of the rights of Dissenting Holders is qualified in
its entirety by reference to Sections 910 and 623 of the NYBCL, copies of each
of which are attached as Appendix G hereto and which should be reviewed by any
UST stockholder wishing to exercise dissenters' rights.
Pursuant to Sections 910 and 623 of the NYBCL, a UST stockholder who
objects to the Merger is entitled to dissent from the Merger and, if the
Merger is consummated, receive payment of the fair value of his or her shares
of UST Common Stock in cash (rather than accept shares of Chase Common Stock),
by complying with the provisions of Section 623 of the NYBCL (a "Dissenting
Holder"). The following summary of the statutory procedures required to be
followed by a UST stockholder in order to perfect his or her rights under
Section 623 of the NYBCL is qualified in its entirety by reference to Section
623 of the NYBCL, the text of which is attached as Appendix G hereto. To
preserve their right to object and receive in cash the fair value of their
shares, UST stockholders must comply with the following procedures. A negative
vote or return of a negative proxy alone is not sufficient. A summary of the
procedure is as follows:
(a) Prior to the Special Meeting, or at the meeting but before the
Merger is submitted to a vote, the Dissenting Holder must file with UST a
written objection to the Merger which includes: (i) a notice of the
Dissenting Holder's election of dissent, (ii) the Dissenting Holder's
name and residence address, (iii) the number and classes of shares as to
which the Dissenting Holder dissents and (iv) a demand for payment of the
fair value of such shares if the Merger is consummated. Prior to the
Special Meeting written objections should be sent to U.S. Trust
Corporation, Attention: Office of the Secretary, 114 West 47th Street,
New York, New York 10036. Stockholders dissenting at the Special Meeting
must submit written objections with the aforementioned information to the
Secretary at the Special Meeting before the Merger is submitted to a
vote. A UST stockholder may not dissent as to less than all the shares as
to which he or she has the right to dissent. A nominee or fiduciary may
not dissent on behalf of any beneficial owner as to less than all the
shares of such owner held of record by such nominee or fiduciary.
(b) The Dissenting Holder must either abstain from voting or vote
against the Merger. A vote for the Merger will cause the UST stockholder
to lose his or her right to dissent. If a proxy is signed and returned
without indicating any voting instructions, shares of UST Common Stock
represented by the proxy will be voted FOR both the Distribution Proposal
and the Merger Proposal. Therefore, returning
50
<PAGE>
a signed proxy without voting instructions will cause such UST
stockholder to lose his or her right to dissent.
(c) Within ten days after UST stockholder approval of the Merger,
UST must give written notice thereof by registered mail to each
Dissenting Holder who filed a written objection to the Merger and did not
vote in favor of the Merger.
(d) At the time of the written objection referred to in paragraph
(a) above, or within one month thereafter, a Dissenting Holder must
submit all certificates representing the Dissenting Holder's shares of
UST Common Stock to UST for the purpose of affixing a notation indicating
that a notice of election to dissent has been filed. After making such a
notation, UST will return such certificates to the Dissenting Holder. If
such certificates are not submitted, the holder thereof shall, at the
option of UST exercised by written notice to the stockholder within 45
days of the filing of the notice of election to dissent, lose the right
to dissent unless a court for good cause otherwise directs.
(e) Within 15 days after the expiration of the period within which
UST stockholders may submit a notice of election to dissent, or within 15
days after the Effective Time, whichever is later, but in no event later
than 90 days after UST stockholder authorization of the Merger, UST shall
make a written offer, by registered mail, to each UST stockholder who
filed notice of election to dissent, to pay for the Dissenting Holder's
shares at a specified price that UST considers to be the fair value of
the shares. The offer shall be made at the same price per share to all
Dissenting Holders and will be accompanied by a statement setting forth
the aggregate number of shares with respect to which notices of election
to dissent have been received and the aggregate number of holders of such
shares. If the Merger has become effective, the offer must be accompanied
by an advance payment of 80% of the offered amount, in the case of each
Dissenting Holder who has submitted certificates for his shares, or a
statement that such an advance payment will be made promptly upon
submission of the certificates for his or her shares in the case of any
other Dissenting Holder. Acceptance of such advance payment by a
Dissenting Holder will not constitute a waiver of his or her right to
dissent. If within 30 days after making the offer any Dissenting Holder
and UST agree upon the price to be paid for the shares, payment of the
offered amount or the balance of the offered amount, as the case may be,
must be made by UST within 60 days after the making of the offer or the
Effective Time, whichever is later, upon the surrender of the
certificates representing the Dissenting Holder's shares.
(f) If UST fails to make the offer described in paragraph (e) above
or if the Dissenting Holder and UST fail to agree within 30 days after
the making of such offer on the price to be paid, UST within 20 days
after the expiration of the appropriate time period set forth above, will
institute a special proceeding in the supreme court in the judicial
district in which UST is located to determine the rights of Dissenting
Holders and to fix the fair value of their shares.
(g) If UST fails to institute the special proceeding described in
paragraph (e) above, any Dissenting Holder may do so within 30 days after
the expiration of the 20-day period. If the proceeding is not instituted
within such 30-day period, the Dissenting Holder will lose the right to
dissent unless the court for good cause otherwise directs. All Dissenting
Holders, other than those who agreed with UST as to the price to be paid
for their shares, must be made parties to such proceeding. The court will
determine those Dissenting Holders who have complied with the provisions
of Section 623 of the NYBCL and who are entitled to dissent, and will
then determine the fair value of their shares as of the close of business
on the date prior to the date the Merger was authorized by the UST
stockholders. In fixing the fair value of the shares, the court will
consider the nature of the transaction giving rise to the Dissenting
Holder's right to receive payment for his or her shares and its effect on
UST and its stockholders, the concepts and methods then customary in the
relevant securities and financial markets for determining the fair value
of shares of a corporation engaging in a similar transaction under
comparable circumstances, and all other relevant factors. The court shall
determine the fair value of the shares without a jury and without
referral to an appraiser or referee.
(h) Within 60 days after the final determination of the special
proceeding UST must pay the Dissenting Holder the amount found to be due,
with interest thereon from the date the Merger was
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<PAGE>
consummated, at such rate as the court finds to be equitable, upon
surrender by the Dissenting Holder of all stock certificates representing
his or her shares. If the court finds that the refusal of any Dissenting
Holder to accept UST's offer of payment for shares was arbitrary,
vexatious or otherwise not in good faith, no interest shall be allowed to
him or her.
The parties to the court proceeding will bear their own costs and
expenses, including the fees and expenses of their counsel and of any experts
employed by them, except that the court, in its discretion and under certain
conditions, may assess all or any part of the costs, expenses and fees
incurred by Dissenting Holders against UST, or may assess all or any part of
the costs, expenses and fees incurred by UST against any Dissenting Holders,
including any Dissenting Holders who have withdrawn their notices of election,
if the court finds that their refusal to accept UST's offer was arbitrary,
vexatious or otherwise not in good faith.
A Dissenting Holder continues to retain all rights of a stockholder until
the Effective Time. Upon the consummation of the Merger, each Dissenting
Holder ceases to have any of the rights of a stockholder with respect to his
UST Common Stock other than the right to be paid the fair value of his shares
and any other rights under Section 623 of the NYBCL. Any notice of election to
dissent may be withdrawn by a Dissenting Holder at any time prior to his
written acceptance of UST's offer, but in no case later than 60 days after
consummation of the Merger (or, if UST fails to make a timely offer to pay the
Dissenting Holder the fair value of his shares as provided above, at any time
within 60 days after the date an offer is made), or thereafter with the
written consent of UST. Any Dissenting Holder who withdraws his or her notice
of election to dissent or otherwise loses his or her right to dissent shall
thereupon have the right to receive shares of Chase Common Stock as provided
in the Merger Agreement.
A UST stockholder is not required to exercise his or her right to dissent
merely because he or she did not vote in favor of the Merger. A UST
stockholder who has not voted in favor of the Merger may, at his or her
election, not pursue his or her right to dissent, in which case he or she will
be bound by the terms of the Merger Agreement and will receive shares of Chase
Common Stock as therein provided.
After consummation of the Merger, actions to be taken by UST will be
taken by Chase as successor to UST. Under the terms of the Merger Agreement,
the obligation of Chase to consummate the Merger is conditioned on holders of
no more than 5% of the aggregate outstanding shares of UST Common Stock
exercising dissenters' rights.
Under New York law, the dissenters' rights procedure is an exclusive
remedy and a Dissenting Holder who does not perfect his or her right to
dissent through compliance with Section 623 of the NYBCL will be bound by the
terms of the Merger, unless the Merger is unlawful or fraudulent as to him. In
view of the complexity of these provisions of New York law, stockholders who
are considering dissenting from the Merger should consult their legal
advisors.
THE DISTRIBUTION
This section of the Proxy Statement-Prospectus describes certain aspects
of the proposed Distribution. To the extent that they relate to the
Distribution Documents, the following descriptions do not purport to be
complete and are qualified in their entirety by reference to the Distribution
Documents which are attached as Appendix B through E to this Proxy
Statement-Prospectus and are incorporated herein by reference. All UST
stockholders are urged to read each of the Distribution Documents in its
entirety.
Background of and Reasons for the Distribution
Because the Processing Business and the Related Back Office were the only
businesses, assets and liabilities of UST that UST and its subsidiaries
proposed to sell, UST determined to effect the Distribution, which will be tax
free to UST stockholders for Federal income tax purposes. UST believes the
Distribution will enable UST stockholders to continue to participate in the
values and prospects of the assets and businesses of Spinco.
52
<PAGE>
Although the Distribution will not be effected unless the Merger is
authorized and about to occur, the Distribution is separate from the Merger
and Spinco Common Stock to be received by holders of UST Common Stock in the
Distribution does not constitute a part of the Merger consideration.
Consummation of the Distribution is a condition to the Merger. Accordingly, if
the Distribution is not approved by the stockholders of UST at the Special
Meeting, the Merger Agreement could be terminated by Chase or UST and the
Merger would not occur, even if the UST stockholders authorize the Merger.
UST stockholders are being asked to vote on the Distribution and the
Merger only, and are not being asked to vote on the transfer of the Core
Businesses to Spinco. In the event the UST stockholders do not approve the
Distribution and do not authorize and adopt the Merger, or if the Merger is
not consummated for any other reason, UST's management nonetheless intends to
transfer the Core Businesses to Spinco and New Trustco. These transfers would
be subject to regulatory approvals, and the Company would either amend its
applications to such regulatory authorities in connection with the Merger, or
file new applications, to seek such approvals. In addition, UST would amend
its application for a private letter ruling made to the Service to request a
ruling confirming that the distribution to UST of the stock of New Trustco
could be effected as a tax-free internal reorganization without triggering a
deferred gain to UST.
Terms of the Contribution Agreement
In connection with the Distribution, USTNY and New Trustco will enter
into the Contribution Agreement. The Contribution Agreement provides for,
among other things, a series of asset and stock transfers between USTNY and
New Trustco, and the assignment to and assumption by New Trustco of
liabilities of USTNY relating to the assets and stock transferred (the
"Contribution Asset Transfers"). The Contribution Asset Transfers are designed
to transfer all the businesses, assets and liabilities of USTNY to New
Trustco, other than the businesses, assets and liabilities included in the
Chase Acquired Business.
Contribution Assets and Contribution Liabilities
Pursuant to the terms of the Contribution Agreement, immediately prior to
the Distribution Asset Transfers (as defined under "-- Terms of the
Distribution Agreement -- The Distribution Asset Transfers" below), USTNY will
assign, transfer, convey and contribute to New Trustco, effective as of the
Closing, all the business, properties, assets, goodwill and rights of USTNY,
other than the Chase Assets (as defined below), owned by USTNY on the Closing
Date (the "Contribution Assets"), including: (i) all assets used or held for
use primarily in the Core Businesses; (ii) all agreements entered into by
USTNY with customers or clients of the Core Businesses relating to such
businesses; (iii) all mortgages, loans, overdrafts, lines of credit, rights in
respect of letters of credit and similar assets of the Core Businesses and all
rights in respect of collateral or security (except rights in collateral to
the extent that such rights secure any Chase Assets) for any of the foregoing;
(iv) all accrued fees, accrued interest and accounts receivable, other than
those of the Chase Acquired Business; (v) all real property owned by USTNY and
all rights in certain leases; (vi) all cash on hand, funds available for
investment, investments and securities of USTNY, other than certain
investments or funds reflected on the balance sheet of the Chase Acquired
Business at the Time of Distribution; (vii) USTNY's interest in all lease and
licensing agreements, and related support agreements, with third parties for
the use of systems and applications software (excluding, however, certain data
processing licenses and computer leases); (viii) USTNY's interest in the Asset
Management System; (ix) all rights relating to the Contribution Liabilities
(as defined below); (x) all rights relating to certain abandoned property;
(xi) all policies of insurance or similar agreements; (xii) all collateral
posted to secure clearing and other contingent obligations; and (xiv) all fees
or accounts receivable of the Chase Acquired Business which have been paid on
or before the close of business on the day immediately prior to the Closing
Date.
The Contribution Agreement also provides that, subject to certain limited
exceptions, the Contribution Assets will not include any assets of USTNY that
are primarily used, or that are held for use in, or are reasonably necessary
for the conduct by USTNY of, the Chase Acquired Business on the Closing Date
(the "Chase Assets"), including: (i) all customer agreements relating to the
Processing Business; (ii) all accounts receivable and accrued and unpaid fees
under customer agreements owed to USTNY on the Closing Date and arising out of
the Processing Business; (iii) certain agreements by which USTNY is bound that
relate to the
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Chase Acquired Business; (iv) USTNY's lease relating to space in the building
located at 770 Broadway, New York, New York (the "Broadway Lease"); (v)
certain USTNY proprietary systems and application software; and (vi) all
rights relating to Chase Liabilities (as defined below).
In addition, pursuant to the terms of the Contribution Agreement, New
Trustco will assume, subject to certain exceptions, effective as of the
Closing, and will pay, perform and discharge when due and indemnify USTNY and
hold USTNY harmless from and against all liabilities (the "Contribution
Liabilities") of USTNY existing on the Closing Date (other than Chase
Liabilities), including: (i) all liabilities of USTNY relating to or arising
out of the Core Businesses; (ii) all liabilities arising out of any event,
occurrence, action or omission taken or occurring prior to the Closing Date by
or with respect to USTNY, its officers, directors, Board of Trustees,
employees, agents or representatives; (iii) all obligations in respect of the
Capital Notes; (iv) any liability which is attributable to any of the
Contribution Assets; (v) all liabilities under each UST benefit plan that is
transferred to New Trustco; (vi) all fees and expenses of USTNY and its
subsidiaries incurred on or before the Contribution Asset Transfers in
connection with the Merger; and (vii) all obligations under agreements
relating to the Chase Acquired Business that are to be performed or discharged
prior to the Closing Date.
The Contribution Agreement also provides that at all times at and after
the Closing, USTNY will, subject to certain exceptions, retain and be solely
responsible for, and USTNY will pay, perform and discharge when due, and
indemnify New Trustco and hold New Trustco harmless from and against the
following liabilities (the "Chase Liabilities"), including: (i) all deposits
arising from the Processing Business; (ii) all liabilities to trade creditors
and accounts payable of the Chase Acquired Business reflected on the balance
sheet of the Chase Acquired Business at the Time of Distribution; (iii) all
liabilities under agreements relating to the Processing Business, subject to
limited exceptions; (iv) (A) all liabilities for amounts required to be paid
as of or after the Effective Time under the terms of UST's 1986 Stock Option
Plan and employer payroll taxes due with respect to such amounts, subject to
certain limits, and (B) all liabilities for amounts payable under the
Transition Bonus Program (as defined under "Effect of Transactions on UST
Employees and UST Benefit Plans" below) maintained by USTNY; (v) all
obligations and duties as lessee under the Broadway Lease arising after the
Closing Date; and (vi) certain obligations relating to certain abandoned
property.
Delayed Assets and Delayed Liabilities
The Contribution Agreement provides that to the extent that any consent
with respect to a contract, agreement, lease or other instrument included in
the Contribution Assets that is legally required to effect the transfer
thereof to New Trustco (a "Required Consent"), and that has not been obtained
on or prior to the Closing Date (such contract, agreement, lease or instrument
a "Delayed Asset") will not be transferred as a Contribution Asset, and any
related liability (a "Delayed Liability") will not be assumed by New Trustco
as a Contribution Liability, unless and until such Required Consent has been
obtained. Pursuant to the Contribution Agreement, USTNY will agree that if
such a Required Consent to transfer is not obtained, USTNY will reasonably
cooperate with New Trustco to attempt to provide to New Trustco the benefits
under or of any such Delayed Asset; provided that New Trustco will assume, pay
and perform (and indemnify and hold USTNY harmless from and against) all
obligations and liabilities relating to such Delayed Asset or Delayed
Liability and will promptly reimburse USTNY for all of its actual costs and
expenses (including attorneys' fees and employee salaries and allocable
benefits, but not overhead) in connection with any such arrangement.
USTNY and New Trustco will agree that, on each occasion after the Closing
Date that a Required Consent is obtained with respect to a Delayed Asset, such
Delayed Asset will be transferred and assigned to New Trustco, and all related
Delayed Liabilities will be simultaneously assumed by New Trustco.
Use of Names
The Contribution Agreement provides that after the Closing Date, USTNY
will promptly change the name "USTNY" on all documents, stationery and
facilities relating to the Chase Acquired Business to a name that is not in
any way similar to USTNY's name (or any name or initial confusingly similar to
that of any
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existing affiliates of New Trustco). Under the Contribution Agreement, USTNY
will transfer to New Trustco all right, title and interest in and to, and all
rights to use, USTNY's name (or any name or initial similar thereto or of any
existing affiliates of USTNY).
Chase Acquired Business Balance Sheet
Because all the consideration for the sale of the Chase Acquired Business
is being paid directly to UST stockholders in the form of Chase Common Stock,
the Contribution Agreement generally contemplates that the balance sheet
assets of the Chase Acquired Business immediately after the Distribution will
be equal to the balance sheet liabilities of the Chase Acquired Business. In
order to effectuate this, the Contribution Agreement provides, subject to
certain exceptions, that USTNY will retain, and not contribute to New Trustco,
an amount of cash and short-term U.S. Treasury securities (valued at the
amount that could be realized on their disposition) expected to exceed by $5.5
million the amount by which the balance sheet liabilities of the Chase
Acquired Business exceed the balance sheet assets of the Chase Acquired
Business. (Such a mechanism is necessary because the deposit and other
liabilities of the Processing Business will significantly exceed the
assets -- which are comprised principally of leasehold improvements,
furniture, equipment and accounts receivable -- of the Processing Business,
and since no investment assets or funds of USTNY are specifically allocated
to, or considered to be assets of, the Processing Business for purposes of the
Contribution Agreement or Distribution Agreement). The amount of funds and
U.S. Treasury securities to be retained by USTNY is subject to additional
adjustments to compensate for amounts otherwise payable by one party to the
other in connection with the transaction or to compensate for liabilities
assumed by Chase that do not directly relate to the Chase Acquired Business.
Similarly, the amount of funds to be retained by USTNY will be increased to
reflect payment obligations to be retained by USTNY in respect of certain
employee plans, the after-tax cost to Chase of terminating out-of-market
computer equipment leases being acquired in the Merger and certain payments
relating to the leasehold space at 770 Broadway also being acquired by Chase
as a consequence of the Merger.
In order to permit the calculation of the amount of funds and U.S.
Treasury securities to be retained by New Trustco, USTNY will prepare Closing
Date balance sheets for USTNY, MF Service Company and UST-WY. The amounts
reflected therein, to the extent based on estimates or otherwise erroneous,
will be finalized and corrected after the Closing Date, and New Trustco or
USTNY will make any compensating payment to the other party required in
connection therewith.
Conditions of Obligations of New Trustco and USTNY
The Contribution Agreement provides that the respective obligation of
each party to effect the Contribution Asset Transfers is subject to
satisfaction or waiver (which waiver, in the case of USTNY, requires the
consent of Chase) prior to the Closing of the following conditions: (a) all
necessary consents or expirations of waiting periods imposed by any
governmental authority shall have been obtained or shall have occurred; (b)
there shall be no suit, action, or other proceeding pending which has been
initiated by any governmental authority seeking to restrain, prohibit,
invalidate or set aside in whole or in part the consummation of the
transactions contemplated by the Contribution Agreement and no temporary
restraining order, preliminary or permanent injunction or other legal
restraint or prohibition preventing the consummation of the transactions
contemplated by the Contribution Agreement shall be in effect; and (c) all
conditions to the consummation of the transactions contemplated by the Merger
Agreement (other than the Asset Transfers (as defined below) and the
Distribution) shall have been satisfied.
Conditions of Obligation of New Trustco
The obligation of New Trustco to accept the Contribution Assets and
assume the Contribution Liabilities is further subject to the following
conditions, unless waived by New Trustco: (a) the representations and
warranties of USTNY set forth in the Contribution Agreement shall be true and
correct in all material respects as of the date of such agreement and as of
the Closing as though made on and as of the Closing (or on or as of the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); (b) USTNY shall have performed or complied in all
material respects with all obligations,
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conditions and covenants required to be performed or complied with by it under
the Contribution Agreement at or prior to the Closing; (c) USTNY shall have
delivered to New Trustco an appropriate bill of sale conveying the
Contribution Assets; (d) the Merger Agreement and each of the Distribution
Documents shall have been executed and shall, subject to consummation of the
transactions contemplated by the Merger Agreement, the Distribution Agreement
and the Contribution Agreement, be effective and in force; and (e) USTNY shall
have amended its organization certificate to change its name.
Conditions of Obligations of USTNY
The obligations of USTNY to assign the Contribution Assets and transfer
the Contribution Liabilities is subject to the following conditions, unless
waived by USTNY (with the consent of Chase): (a) the representations and
warranties of New Trustco set forth in the Contribution Agreement shall be
true and correct in all material respects as of its date and as of the Closing
Date as though made on and as of the Closing Date (or on or as of the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); (b) New Trustco shall have performed or complied
in all material respects with all obligations required to be performed or
complied with by it under the Contribution Agreement at or prior to the
Closing; (c) New Trustco shall have executed and delivered to USTNY an
Assumption Agreement relating to the Contribution Liabilities; and (d) the
Merger Agreement and each of the Distribution Documents shall have been
executed and shall, subject to consummation of the transactions contemplated
by the Merger Agreement, the Distribution Agreement and the Contribution
Agreement, be effective and in force.
Terms of the Distribution Agreement
The Distribution Agreement provides for, among other things, (i) the
dividend by USTNY of all the capital stock of New Trustco to UST, and the
subsequent contribution by UST of such capital stock to Spinco and (ii) the
Distribution.
In addition, the Distribution Agreement provides for a series of asset
and stock transfers between and among UST, certain of UST's subsidiaries and
Spinco, and the assignment to and assumption by Spinco of certain liabilities
of UST and certain of its subsidiaries relating to the assets and stock
transferred (the "Distribution Asset Transfers" and, together with the
Contribution Asset Transfers, the "Asset Transfers"). The Distribution Asset
Transfers are designed to transfer the Core Businesses to Spinco.
Recapitalization of Spinco
The Distribution Agreement provides that immediately prior to the Time of
Distribution, UST will appropriately cause Spinco to amend its certificate of
incorporation to, among other things, increase the currently authorized number
of shares of common stock of Spinco and to exchange the 100 shares of such
common stock currently outstanding for a total number of shares of Spinco
Common Stock equal to the total number of shares of UST Common Stock
outstanding immediately prior to the Distribution Record Date.
Method of Effecting the Distribution
The Distribution Agreement provides that the Distribution will be
effected by the distribution to each holder of record of UST Common Stock, as
of the close of the stock transfer books on the Distribution Record Date, of
certificates representing one share of Spinco Common Stock multiplied by the
number of shares of UST Common Stock held by such holder.
Distribution Assets and Distribution Liabilities
Pursuant to the terms of the Distribution Agreement, immediately prior to
the Time of Distribution and immediately following the Contribution Asset
Transfers and the dividend by USTNY of all the stock of New Trustco to UST,
UST will assign, transfer, convey and contribute, or cause the assignment,
transfer,
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conveyance and contribution of, the Core Businesses, including the following
(collectively, the "Distribution Assets" and, together with the Contribution
Assets, the "Spinco Assets"), to Spinco:
(a) all of the issued and outstanding capital stock of the following
subsidiaries: (i) New Trustco; (ii) U.S. Trust Company of Florida Savings
Bank, a Florida banking corporation; (iii) U.S.T.L.P.O. Corp., a Delaware
corporation; (iv) Campbell, Cowperthwait & Company, a Delaware
corporation; (v) U.S. Trust Company of California, N.A., a national
banking association; (vi) U.S. Trust Company of New Jersey, a New Jersey
banking corporation; (vii) U.S. Trust Company of Connecticut, a
Connecticut banking corporation; (viii) UST Financial Services Corp., a
New York corporation; (ix) CTMC Holding Company, an Oregon corporation;
(x) U.S. Trust Company Limited, a New York trust company; (xi)
Technologies Holding Corporation, a Delaware corporation; and (xii) UST
Risk Management Services Inc., a New York corporation.
(b) (i) subject to the Retention Amount (as defined under
"-- Retention Amount" below), all cash on hand, investments (subject to
certain exceptions) and securities (subject to certain exceptions) owned
by, or held for the account of, UST; (ii) all patents, trademarks,
service marks and the like, and all rights to the name "U.S. Trust
Corporation" or any other name used or employed by UST or any of its
affiliates (other than MF Service Company); (iii) all equity or debt
investments of UST in any corporation or other business association
(other than UST's equity investments in MF Service Company, USTNY and
UST-WY); and (iv) all rights relating to the Distribution Liabilities (as
defined below).
(c) (i) all cash on hand, investments and securities owned by, or
held for the account of, MF Service Company; and (ii) all equity or debt
investments of MF Service Company (other than MF Service Company's equity
interest in Mutual Funds Service Company (Canada) Ltd.) in any
corporation or other business association.
(d) (i) all cash on hand, investments and securities owned by, or
held for the account of UST-WY; (ii) all patents, trademarks, service
marks and the like and all rights with respect to the name "U.S. Trust
Company of Wyoming" or any similar name used or employed by UST-WY or any
of its affiliates; and (iii) all equity or debt investments of UST-WY in
any corporation or other business association.
The Distribution Agreement provides that, notwithstanding any other
provision therein to the contrary, the businesses and assets which are part of
the Core Businesses will not include the Chase Acquired Business on the
Closing Date (other than any names that are Distribution Assets, or any
similar names).
The Distribution Agreement also provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement, the Contribution Agreement or the Merger Agreement were intended to
be assigned and transferred to, or retained by, the other party, such party
will promptly assign and transfer or cause to be assigned and transferred such
assets to the other party. The Distribution Agreement further provides that,
except as otherwise provided therein or in the Merger Agreement, the
Contribution Agreement, the Post Closing Covenants Agreement or the Tax
Allocation Agreement, at or prior to the Time of Distribution, Spinco will
assume, or agree to be responsible for, all liabilities (the "Distribution
Liabilities" and, together with the Contribution Liabilities, the "Spinco
Liabilities") of UST, MF Service Company and UST-WY other than (i) the certain
specified liabilities of MF Service Company (the "MF Service Company Retained
Liabilities") arising before the Time of Distribution; (ii) the certain
specified liabilities of UST-WY (the "UST-WY Retained Liabilities") arising
prior to the Time of Distribution and (iii) the liabilities and obligations
relating to the Retention Amount.
Retention Amount
Pursuant to the terms of the Distribution Agreement, and notwithstanding
the Distribution Asset Transfers, UST will retain, and not distribute or
contribute to Spinco pursuant to the Distribution Asset Transfers, cash funds
equal to the Retention Amount. The Distribution Agreement defines the
"Retention Amount" as the sum of (w) the aggregate amount, determined as of
the close of business on the day immediately prior to the Closing Date, of the
cash payments required to be made with respect to all stock options granted
under the 1989 Stock Compensation Plan of U.S. Trust Corporation and the U.S.
Trust
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Corporation Stock Option Plan for Non-Employee Directors that have not expired
or that have not been exercised or canceled prior to the Effective Time,
determined in accordance with the relevant provisions of each such plan on the
basis of a "change in control" having occurred thereunder with respect to such
stock options as a result of the Merger; plus (x) the product of (i) the
aggregate amount, determined as of the close of business on the day
immediately prior to the Closing Date, of the cash payments required to be
made with respect to all outstanding account balances under the AIP,
determined in accordance with the relevant provisions of such plan (including
any amendment thereof made in accordance with the terms of the Merger
Agreement) on the basis of a "change in control" having occurred thereunder as
a result of the Merger, multiplied by (ii) 0.68875; plus (y) the aggregate
amount, determined as of the close of business on the day immediately prior to
the Closing Date, required to pay any employer payroll taxes, including for
employer's share of FICA and FUTA, due on amounts payable under the plans
referred to in clauses (w) and (x) above; minus (z) the sum of (i) $5.5
million plus (ii) an amount equal to the amount of MF Service Company's net
worth as reflected on its Closing Date balance sheet plus (iii) an amount
equal to the amount of UST-WY's net worth as reflected on its Closing Date
balance sheet.
Under the Distribution Agreement, UST will retain and be solely
responsible for, and will agree to pay, perform and discharge when due, and
indemnify Spinco and hold Spinco harmless from and against, all liabilities
and obligations, subject to certain limitations, for amounts payable under
each of the plans referred to in clauses (w) and (x)(i) of the foregoing
paragraph, and all liabilities and obligations to pay all employer payroll
taxes referred to in clause (y) of the foregoing paragraph.
Conditions to the Distribution
The obligations of UST and Spinco to consummate the Distribution are
subject to the fulfillment of each of the following conditions: (i) the
recapitalization of Spinco shall have been completed substantially as
described in the Distribution Agreement; (ii) each of the Contribution
Agreement, the Post Closing Covenants Agreement and the Tax Allocation
Agreement shall have been executed and delivered by each of the parties
thereto, and the Contribution Asset Transfers shall have been consummated;
(iv) all of the Distribution Asset Transfers shall have been successfully
consummated; (v) each condition to the Closing of the Merger Agreement, other
than the condition requiring the satisfaction of conditions contained in the
Distribution Agreement, shall have been fulfilled; (vi) the Distribution shall
have been approved by the affirmative vote of the holders of UST Common Stock
entitled to cast at least two-thirds (or 66-2/3%) of the total number of votes
entitled to be cast; (vii) any registration statement filed by Spinco with the
Commission in connection with the issuance of Spinco Common Stock in the
Distribution shall have become effective, and shall not be the subject of any
stop order or proceeding by the Commission seeking a stop order; (viii) the
shares of Spinco Common Stock to be issued in the Distribution shall have
designated as a national market system security on the interdealer quotation
system by the NASD; (ix) all necessary consents or expirations of waiting
periods imposed by any governmental authority shall have been obtained or
shall have occurred; and (x) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect.
Amendment
The Distribution Agreement provides that UST and the Company may modify
or amend the Distribution Agreement by written agreement, subject to the
consent of Chase.
Terms of the Post Closing Covenants Agreement
Indemnification by Spinco
Pursuant to the Post Closing Covenants Agreement, Spinco will agree that,
from and after the Effective Time, it will indemnify and hold harmless Chase,
UST and USTNY (collectively, the "Chase Parties") and their respective
directors, officers, employees, affiliates, agents and assigns, as applicable,
against any and all losses, as incurred, for or on account of or arising from:
(a) any breach of or any inaccuracy in any
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representation or warranty of any of Spinco, New Trustco (collectively, the
"New UST Parties"), UST, USTNY and their subsidiaries contained in the Merger
Agreement or any of the Distribution Documents; (b) any breach or
nonperformance of any covenant of (i) the New UST Parties or any of their
subsidiaries contained in the Merger Agreement or the Distribution Documents
whether to be performed before or after the Effective Time or (ii) UST or
USTNY or any of their subsidiaries contained in the Distribution Documents to
be performed prior to the Effective Time; (c) any Spinco Asset or Spinco
Liability; (d) any Delayed Asset or Delayed Liability; (e) any regulatory or
compliance violation that arises out of events, actions or omissions to act of
UST or USTNY occurring prior to the Effective Time and adversely affects a
customer account or any entity that has an interest in such customer account;
(f) except for the Chase Liabilities and the MF Service Company Retained
Liabilities, and actions relating to the Processing Business, claims of any
shareholders, directors, officers, employees or agents of UST and its
subsidiaries arising from the execution by UST or USTNY of the Merger
Agreement or the Distribution Documents and the consummation after the
Effective Time of transactions in accordance with the terms of such documents;
(g) any untrue statement or alleged untrue statement of any material fact
contained in this Proxy Statement-Prospectus or any amendment or supplement
hereto, or any omission or alleged omission to state herein a material fact
required to be stated herein or necessary to make the statements herein, in
light of the circumstances under which they were made, not misleading; but
only in each case to the extent based upon information with respect to the New
UST Parties, furnished in writing by or on behalf of the New UST Parties, or
at any time prior to the Effective Time, UST or USTNY, expressly for use in
this Proxy Statement-Prospectus or any amendment or supplement hereto; and (h)
any liability arising (i) from a claim to enforce, or to recover tort
liability arising out of, any Federal, state or local law, rule or regulation
relating to the protection of the environment with respect to any facility,
site, location or business (whether past or present and whether active or
inactive) owned, operated or leased by UST or USTNY or any of their
subsidiaries prior to the Effective Time and (ii) as a result of conditions
existing during or prior to the period of time such facility, site, location
or business was owned, operated or leased by UST or USTNY or any of their
subsidiaries.
Indemnification by New Trustco
Pursuant to the Post Closing Covenants Agreement, New Trustco will agree
that, from and after the Effective Time, it will indemnify and hold harmless
the Chase Parties and their respective directors, officers, employees,
affiliates, agents and assigns, as applicable, against any and all losses, as
incurred, for or on account of or arising from: (a) any breach of or any
inaccuracy in any representation or warranty of New Trustco or USTNY and their
subsidiaries contained in the Merger Agreement or any of the Distribution
Documents; (b) any breach or nonperformance of any covenant of (i) New Trustco
contained in the Merger Agreement or the Distribution Documents whether to be
performed before or after the Effective Time or (ii) USTNY contained in the
Merger Agreement or the Distribution Documents to be performed prior to the
Effective Time; (c) any Contribution Asset or Contribution Liability; (d) any
Delayed Asset or Delayed Liability; (e) any regulatory or compliance violation
that arises out of events, actions or omissions to act of USTNY occurring
prior to the Effective Time and adversely affects a customer account or any
entity with an interest in such customer account; and (f) any liability
arising (i) from a claim to enforce, or to recover tort liability arising out
of, any Federal, state or local law, rule or regulation relating to the
protection of the environment with respect to any facility, site, location or
business (whether past or present and whether active or inactive) owned,
operated or leased by USTNY prior to the Effective Time and (ii) as a result
of conditions existing during or prior to the period of time such facility,
site, location or business was owned, operated or leased by USTNY.
Indemnification by Chase
Pursuant to the Post Closing Covenants Agreement, Chase will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for
or on account of or arising from: (a) any breach of or inaccuracy in any
representation or warranty of Chase contained in the Merger Agreement or any
of the Distribution Documents; (b) any breach or nonperformance of any
covenant of (i) Chase contained in the Merger Agreement or the Distribution
Documents whether to be performed
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before or after the Effective Time or (ii) UST or USTNY or any of their
subsidiaries contained in the Documents to be performed after the Effective
Time; (c) except for losses as to which any of the Chase Parties are entitled
to indemnification, any Chase Asset, any Chase Liability or any MF Service
Company Retained Liability; and (d) any untrue statement or alleged untrue
statement of any material fact contained in this Proxy Statement-Prospectus or
any amendment or supplement hereto, or any omission or alleged omission to
state herein a material fact required to be stated herein or necessary to make
the statements herein, in light of the circumstances under which they were
made, not misleading; but only in each case to the extent based upon
information with respect to the Chase Parties furnished in writing by or on
behalf of Chase or, at any time after the Effective Time, UST or USTNY,
expressly for use in this Proxy Statement-Prospectus or any amendment or
supplement hereto.
Indemnification by USTNY
Pursuant to the Post Closing Covenants Agreement, USTNY will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for
or on account of or arising from: (a) any breach or nonperformance of any
covenant of USTNY contained in the Merger Agreement or the Distribution
Documents to be performed after the Effective Time; and (b) except for losses
as to which any of the Chase Parties are entitled to indemnification, any
Chase Asset or any Chase Liability.
Termination and Limitation on Indemnification
The Post Closing Covenants Agreement provides that each party's
obligation to indemnify and hold harmless any other party will terminate,
subject to certain limited exceptions, (a) in the case of indemnification with
respect to the breach of any representation and warranty by any party, two
years from the Closing Date and (b) in the case of indemnification with
respect to regulatory compliance, one year from the Closing Date. The other
indemnification provisions do not terminate.
The Post Closing Covenants Agreement also provides that, notwithstanding
any of its other provisions, neither the New UST Parties nor Chase or USTNY
will be obligated to indemnify any party unless the aggregate amount of all
losses relating to such liability exceeds on a cumulative basis an amount
equal to $500,000 (the "Deductible Amount"), and then only to the extent of
any such excess; provided, that any loss arising from a single indemnification
claim in an amount greater than $50,000 will not be subject to such limitation
and will be excluded from the determination of the Deductible Amount. In
addition, amounts to be indemnified pursuant to certain provisions of the
Contribution Agreement and certain provisions of the Distribution Agreement
are not subject to such limitation.
Minimum Net Worth
Pursuant to the Post Closing Covenants Agreement, Spinco will agree that,
until the later of (a) three years from the date thereof or (b) the date when
the applicable statutes of limitations with respect to all Federal income tax
liabilities of UST for periods ending prior to or on the Closing Date have
run, it will (i) as of any date of determination, maintain consolidated
shareholders' equity of not less than the lesser of (x) $150 million and (y)
the greater of (1) 95% of the consolidated shareholders equity of Spinco at
January 1, 1996, and (2) the sum of (A) $135 million plus, (B) on and after
January 1, 1997, the product of (I) $7.5 million multiplied by (II) the number
of the most recent preceding anniversary of December 31, 1995, and (ii) be a
"well capitalized" bank holding company within the meaning of the regulations
of the Board of Governors of the Federal Reserve System (as in effect on the
date of the Post Closing Covenants Agreement); except that, so long as
Spinco's Tier 1 capital leverage ratio is 4.5% or above, Spinco will not be
deemed to be less than "well capitalized" solely because its Tier 1 capital
leverage ratio is less than 5%; provided, however, that on or before September
30, 1995, the denominator used in determining Spinco's Tier 1 capital leverage
ratio will be the book value of the average total consolidated assets (net of
the allowance for loan losses) of Spinco following the Distribution.
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Spinco's Noncompetition Agreement
Pursuant to the Post Closing Covenants Agreement, Spinco will agree that,
subject to certain exceptions relating to acquisitions and the conduct of the
asset management, private banking, special fiduciary and corporate trust
businesses by Spinco, until the fourth anniversary of the Effective Time,
neither Spinco nor any subsidiary or affiliate of Spinco will engage in the
Processing Business in the United States or Canada, or own, manage, operate,
control or have an interest greater than 5% of the voting stock or 25% of the
total equity in any enterprise which engages, directly or indirectly, in the
Processing Business in the United States or Canada.
Spinco will also agree that until the third anniversary of the Effective
Time, it will not solicit for employment certain specified employees to be
retained by the Chase Parties or disclose or make use of certain confidential
information related to the Chase Acquired Business.
The noncompetition terms provide that in the event that upon the
acquisition of Spinco or New Trustco by certain unaffiliated parties, Spinco
and New Trustco will cease to be bound by the noncompetition provisions of the
Post Closing Covenants Agreement, and upon six months notice by Chase, Chase
may treat such acquisition as a termination of the Services Agreement by New
Trustco and cease providing services under the Services Agreement on or after
six months thereafter.
For further discussion of the noncompetition terms of the Post Closing
Covenants Agreement, see "The Distribution -- Terms of the Post Closing
Covenants Agreement -- The Company's Noncompetition Agreement" in the
Information Statement attached as Appendix H hereto. Stockholders are urged to
read the Information Statement in its entirety.
Terms of the Tax Allocation Agreement
Prior to the Time of Distribution, Chase, UST and Spinco will enter into
a Tax Allocation Agreement which sets forth each party's rights and
obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the Distribution and
related matters such as the filing of tax returns and the conduct of the
claims made by the Service and other taxing authorities.
In general, under the Tax Allocation Agreement, Spinco will be
responsible for taxes imposed on UST or any of its subsidiaries with respect
to a tax period ending on or before the Effective Time.
EFFECT OF TRANSACTIONS ON UST EMPLOYEES
AND UST BENEFIT PLANS
Transfer of Employment
Pursuant to the Contribution Agreement, each person who is an employee of
USTNY or any of its affiliates immediately before the Closing will become an
employee of New Trustco, or any affiliate of New Trustco designated by it,
effective as of the Closing, except for any such person employed in the Chase
Acquired Business who, in accordance with the provisions of the Merger
Agreement, has received an offer from Chase to be retained in employment with
the Chase Acquired Business after the Merger and who has accepted such offer.
Chase has offered such continuing employment to approximately 1,120
persons presently employed by USTNY or its affiliates in the Chase Acquired
Business. Any person who accepts such offer of continuing employment is
hereinafter referred to as a "Retained Employee".
Each present executive officer of UST will become an executive officer of
Spinco at the Time of Distribution except for Donald M. Roberts, a Vice
Chairman and Treasurer of UST, and Frederick S. Wonham, a Vice Chairman of
UST, each of whom will be retiring effective as of the Closing Date. See "The
Merger -- Interests of Certain Persons in the Transactions".
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Transfer of Plans
The Merger Agreement provides that before the Effective Time, in
connection with the Asset Transfers, UST and USTNY will transfer to Spinco and
to New Trustco, respectively, each employee benefit and executive compensation
plan maintained by it other than any Retained Plan (as defined under
"-- Retained Plans" below) and, in the case of USTNY, the Transition Bonus
Program (as defined under "-- Transition Bonus Program" below). The Merger
Agreement also provides that Spinco and New Trustco will assume and become
solely responsible for all liabilities and obligations of UST and USTNY,
respectively, under each of the plans so transferred to it. The plans to be so
transferred (the "Transferred Plans") include those described below, which
will be maintained by either Spinco or New Trustco.
Plans maintained by UST that will be transferred to Spinco include the
following plans: 1989 Stock Compensation Plan of U.S. Trust Corporation, other
than the provisions thereof relating to stock options; 1988 Long-Term
Performance Plan of U.S. Trust Corporation; Long-Term Performance Plan of U.S.
Trust Corporation; Benefit Equalization Plan of U.S. Trust Corporation;
Supplemental Pension Agreements between U.S. Trust Corporation and Messrs.
Schwarz, Maurer, Roberts, Taylor, Wonham and Abramowitz; Board Members'
Deferred Compensation Plan of U.S. Trust Corporation; Board Members'
Retirement Plan of U.S. Trust Corporation; U.S. Trust Corporation Stock Plan
for Non-Officer Directors; Executive Deferred Compensation Plan of U.S. Trust
Corporation; U.S. Trust Corporation Benefits Protection Trust I; and U.S.
Trust Corporation Benefits Protection Trust II.
Plans maintained by USTNY that will be transferred to New Trustco include
the following plans: 401(k) Plan and ESOP of United States Trust Company of
New York and Affiliated Companies; Employee's Retirement Plan of United States
Trust Company of New York and Affiliated Companies; United States Trust
Company of New York and Affiliated Companies 1981 Stock Option Plan; Incentive
Award Plan of United States Trust Company of New York and Affiliated
Companies; 1990 Annual Incentive Plan of United States Trust Company of New
York and Affiliated Companies; United States Trust Company of New York and
Affiliated Companies Executives' Benefits Protection Trust; 1990 Change in
Control and Severance Policy for Top Tier Officers of United States Trust
Company of New York and Affiliated Companies; 1990 Change in Control and
Severance Policy for Officers and Employees of United States Trust Company of
New York and Affiliated Companies; Employee's Health Benefits Plan of The
United States Trust Company of New York and Affiliated Companies; Employees'
Dental Insurance Plan of The United States Trust Company of New York and
Affiliated Companies; Employee's Flexible Spending Plan of The United States
Trust Company of New York and Affiliated Companies; Employee's Short-Term
Disability Plan of The United States Trust Company of New York and Affiliated
Companies; and Employee's Long-Term Disability Plan of The United States Trust
Company of New York and Affiliated Companies.
For a discussion of changes that will be made in certain of the
Transferred Plans effective after the Distribution and the Merger, see
"Executive Compensation Plans in Effect after the Distribution" in the
Information Statement attached as Appendix H hereto.
Retained Plans
The plans maintained by UST and USTNY that will not be transferred to
Spinco or New Trustco (the "Retained Plans") are the following: all provisions
of the 1989 Stock Compensation Plan of U.S. Trust Corporation relating to
stock options (the "1989 Option Plan"), the U.S. Trust Corporation Stock
Option Plan for Non-Employee Directors (the "Directors Option Plan"), the
United States Trust Company of New York and Affiliated Companies 1986 Stock
Option Plan (the "1986 Option Plan"), the United States Trust Company of New
York and Affiliated Companies 1981 Incentive Stock Option Plan (the "1981
Option Plan"), and the AIP. The 1989 Option Plan, the Directors Option Plan,
the 1986 Option Plan, and the 1981 Option Plan are hereinafter collectively
referred to as the "UST Option Plans".
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With respect to all options granted under the UST Option Plans other than
any incentive stock options granted before October 27, 1987 under the 1986
Option Plan and the 1981 Option Plan (the "Pre-1987 ISO's"), the Merger will
be treated as the occurrence of a "change in control" of UST, as defined in
the UST Option Plans, with the following consequences:
(a) any option granted under the 1989 Option Plan that had not
previously become vested will become vested, and the holder thereof will
be entitled to exercise such option immediately before the Effective Time
with respect to any or all of the shares of UST Common Stock then subject
to the option;
(b) each option granted under each of the UST Stock Option Plans, to
the extent it has not expired or has not been exercised or cancelled
prior to the Effective Time, will be cancelled as of the Effective Time;
and
(c) with respect to each option so cancelled other than any Pre-1987
ISO's, the holder thereof will be entitled to receive a lump-sum cash
payment in an amount equal to the excess of (i) the Determined Value (as
defined below) of the shares of UST Common Stock subject to the option,
over (ii) the aggregate exercise price for such shares. The amount so
payable with respect to each such option, less the amount of taxes
required to be withheld on such amount, will be paid to the holder of
such option at the Effective Time, or as soon thereafter as practicable.
UST currently estimates that the aggregate amount of such payments will
be $39.1 million. See note (1) to "Notes to Pro Forma Condensed Financial
Statements" in the Information Statement attached as Appendix H hereto.
As provided in the UST Option Plans, the "Determined Value" of the shares
of UST Common Stock subject to any option means the product of (i) the greater
of (A) the highest bid price per share of UST Common Stock during the 12-month
period ending on the day immediately preceding the Closing Date, or (B) the
Transaction Value per share of UST Common Stock, multiplied by (ii) the number
of shares of UST Common Stock subject to such option. For purposes of the
foregoing, the "Transaction Value" per share of UST Common Stock shall mean
the sum of (x) the product of the Conversion Number of shares of Chase Common
Stock, multiplied by the Average Value of Chase Common Stock, and (y) the
amount representing the 10-day average of the daily average of the high bid
and low asked prices for a share of Spinco Common Stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated on a "when-issued" basis on each of the 10 trading days
immediately preceding the Closing Date.
The 1981 Option Plan will be terminated as of the Effective Time. Each of
the other UST Option Plans will be terminated as soon as all payments required
to be made with respect to outstanding options thereunder have been made to
the holders of such options.
The Merger also will be treated as a "change in control" of UST (as
defined in the AIP) for purposes of the AIP. Accordingly, as provided in the
AIP, the entire unpaid balance of each participant's account under the AIP
will become payable in full at the Effective Time. The amount so payable, less
the amount of any taxes required to be withheld on such amount, will be paid
to the participant at the Effective Time or as soon thereafter as practicable.
The AIP will be terminated as soon as such payments have been made to all
participants.
See "The Merger -- Interests of Certain Persons in the Transactions" for
a discussion of the effect of these provisions of the Retained Plans on UST's
executive officers and members of the UST Board.
Severance Arrangements
UST anticipates that as a result of the reduced need for personnel in
back office, operational support, and corporate staff areas following the
disposition of the Chase Acquired Business, approximately 150 staff positions
in these areas will be eliminated. New Trustco will provide special severance
benefits to each full-time employee whose employment with New Trustco and its
affiliates is involuntarily terminated within one year following the Closing
Date.
Each employee so terminated will receive (a) a lump-sum cash payment in
an amount equal to the sum of (i) 4% of annual base salary for each year of
service with UST and New Trustco, plus (ii) an amount equal
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to two weeks' to one year's base salary depending on the position held by the
employee with New Trustco at the time of termination and, in the case of
non-officer employees, the employee's length of service with UST and New
Trustco (the "Severance Benefit Payment"), (b) professional outplacement
counselling services; (c) continuation of coverage under the medical, dental,
life insurance and disability plans that will be transferred by USTNY to and
maintained by New Trustco, for a period of 3 months to one year following
termination, depending on the position held by the employee with New Trustco
at the time of termination; (d) in the case of each employee so terminated
whose age and years of service total 70 or more, an enhanced pension benefit
under the Retirement Plan, which will be transferred by USTNY to and
maintained by New Trustco, in an amount equal to the excess of (i) the
additional pension that would be payable to the employee under the Retirement
Plan if 5 years were added to the employee's age and years of service, over
(ii) the additional pension that would be payable to the employee under the
Retirement Plan if he or she were entitled thereunder to receive an additional
pension in an amount that is actuarially equivalent to the amount of the
portion of the Severance Benefit Payment payable to the employee that is
described in (a)(i) above, after adjustment for taxes payable on such amount
(the "Enhanced Pension Benefit"); and (e) if the employee's age and years of
service total 70 or more and he or she has had at least 10 years of service,
post-retirement medical coverage under the medical plan that will be
transferred by USTNY to, and maintained by, New Trustco.
Pursuant to the Merger Agreement, Chase has agreed to provide special
severance benefits to any Retained Employee whose employment with Chase and
its affiliates is "involuntarily terminated", as defined in the Merger
Agreement, within 2 years following the Closing Date. The benefits so provided
will include (a) a severance payment in an amount determined in the same
manner as the Severance Benefit Payment described above based on the Retained
Employee's base salary and position with UST immediately prior to the Closing,
and on the Retained Employee's years of service with UST; (b) professional
outplacement counselling service; and (c) continuation of coverage under the
medical, dental, life insurance and disability plans maintained by Chase and
its affiliates for their employees, for a period of 3 months to one year
following termination, depending on the position held by the Retained Employee
with UST.
In addition, in the case of any Retained Employee so terminated whose age
and years of service with UST immediately prior to the Closing Date total 70
or more, New Trustco will provide such Retained Employee, under the Retirement
Plan, with the Enhanced Pension Benefit described above, determined on the
basis of the Retained Employee's salary, age and years of service with UST at
the Closing Date. New Trustco will also provide any Retained Employee so
terminated whose age and years of service with UST immediately prior to the
Closing Date total 70 or more and who has had at least 10 years of service
with UST, post-retirement medical coverage under the medical plan that will be
transferred by USTNY to, and maintained by, New Trustco.
The Retirement Plan will be amended to provide that, in the case of each
Retained Employee who has attained age 45 and has had at least 15 years of
service with UST prior to the Closing Date, and who remains employed with
Chase or any of its affiliates for more than 2 years following the Closing
Date, such Retained Employee's period of service with Chase and its affiliates
will be treated as an additional period of service with UST for purposes of
determining whether the Retained Employee has met the Retirement Plan's "Rule
of 80" requirement for eligibility to receive early retirement benefits.
See "Interests of Certain Persons in the Transactions" above for a
description of the separation benefits arrangements with Messrs. Roberts and
Wonham in connection with their retirement from UST effective as of the
Closing Date.
Transition Bonus Program
As provided in the Merger Agreement, USTNY and its affiliates have
adopted a program (the "Transition Bonus Program") under which certain
designated employees in positions associated with the conduct of the Chase
Acquired Business will be paid bonuses, in amounts ranging from 3 months' to
one year's base salary, if they become Retained Employees and complete
specified periods of service, ranging from 30 to 90 days, with Chase or its
affiliates following the Merger.
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A total of 635 UST employees were designated as eligible for
participation in the Transition Bonus Program. Of this total, 10 employees
have not been offered continuing employment with Chase as of January 1, 1995,
and therefore will not become Retained Employees. Nevertheless, such employees
will be entitled to receive their bonus under the Program if they complete an
agreed-upon period of service with New Trustco following the Merger.
Pursuant to the Merger Agreement, Chase has agreed to bear a portion of
the cost of the bonuses paid to Retained Employees under the Transition Bonus
Program.
UST presently estimates that its costs for severance and related benefits
and for Transition Bonus Program payments will be approximately $12.7 million
and $8.4 million, respectively, or approximately $21.1 million in the
aggregate. However, the ultimate level of these costs will not be precisely
determinable until the Closing Date. The aggregate amount of these costs may
range from approximately $21.1 million to approximately $24 million. See notes
(e) and (l) to "Notes to Pro Forma Condensed Financial Statements" in the
Information Statement attached as Appendix H hereto.
RELATIONSHIP WITH CHASE
Following the Merger, Spinco will continue to have certain relationships
with Chase and its subsidiaries.
Post Closing Covenants Agreement; Tax Allocation Agreement
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and Spinco and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, Spinco
has agreed, pursuant to the Post Closing Covenants Agreement not to engage in,
or compete with Chase with respect to, the Chase Acquired Business, subject to
certain limited exceptions, for a period of four years after the Effective
Time . See "The Distribution -- Terms of the Post Closing Covenants
Agreement -- Spinco's Noncompetition Agreement".
Services Agreement
In the Merger, Chase will acquire the Related Back Office, which includes
software and hardware necessary to conduct the Chase Acquired Business.
Certain core software, principally software to operate the Asset Management
System, will be transferred to New Trustco and licensed by New Trustco to
USTNY on a perpetual nonexclusive basis. Although the Related Back Office
primarily serves the Processing Business, it also provides necessary services
to the Core Businesses, all of which will be transferred to New Trustco and
its affiliates pursuant to the Contribution Agreement. Accordingly, prior to
the Time of Distribution, New Trustco and USTNY will enter into the Services
Agreement.
Pursuant to the Services Agreement, USTNY will agree to furnish necessary
securities processing, custodial, data processing and other services (the
"Back Office Services"), at agreed upon service levels, to New Trustco and its
affiliates. The Services Agreement will be in a form, and on terms, agreed to
by UST and Chase on or before February 28, 1995, substantially in accordance
with the terms of the Services Agreement Term Sheet entered into on November
18, 1994, between UST and Chase. In the Bank Merger, CMB will acquire the
rights, and assume the obligations, of USTNY under the Services Agreement.
The parties intend that the Back Office Services furnished to New Trustco
and its affiliates under the Services Agreement will include all of the
functions that are currently performed by the Related Back Office, as well as
certain bank processing services, such as loan processing services, deposit
and check processing services (the "Bank Processing Services"). The Back
Office Services may be modified to reflect reasonable evolution or change in
the business of New Trustco and its affiliates. The Back Office Services will
not include any broker dealer services, securities industry banking services
or back-up servicing.
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Under the Services Agreement, CMB will provide the Back Office Services
to New Trustco for an initial term of five years beginning on the Closing
Date. With CMB's consent (which CMB may withhold in its sole discretion), New
Trustco may extend the initial term of the Services Agreement for an
additional five years. If CMB withholds such consent, New Trustco may in any
case extend the term of the Services Agreement for an additional two years.
In consideration of the Back Office Services provided to it under the
Services Agreement, during the initial term, New Trustco will pay to CMB an
annual base fee of $10 million, which is significantly less than New Trustco's
estimate of the annual cost of providing such services itself. The annual base
fee for any additional term after the initial term will be an amount equal to
110% of the total fees paid by New Trustco in the fifth year of the initial
term.
The annual base fee will cover all Back Office Services required by
normal growth of New Trustco and its affiliates, and will include, as well,
certain base levels of systems development and maintenance resources. CMB will
charge New Trustco at rates discounted from CMB's prevailing rates for similar
institutional business for any incremental Back Office Services attributable
to additional growth, evolution in the business of New Trustco and its
affiliates, and certain other new business.
CMB may assign the Bank Processing Services or other data center services
provided under the Services Agreement to a third party, without New Trustco's
consent, provided the third party will also be providing such services to CMB.
CMB may not assign the remaining services to a third party, although it may
sell or transfer responsibility for the Back Office Services together with the
sale or transfer of the Chase business unit providing such Back Office
Services. New Trustco will not have the right to assign the Services Agreement
without CMB's consent.
Either party may terminate the Services Agreement upon a material breach
by the other which has not been cured within 30 days after the expiration of a
15-day informal dispute resolution process initiated by the nonbreaching
party. Either party may terminate in the event that the other party becomes
insolvent or bankrupt or undergoes a change in control.
New Trustco may terminate the Services Agreement for any reason effective
after the end of the first year by giving six months' advance notice. In the
event of such a termination, New Trustco will pay CMB a termination fee of
$2.5 million dollars, which fee will be reduced incrementally over the term of
the Services Agreement.
In the event of any termination or expiration of the Services Agreement
(including termination due to any material breach by New Trustco), the
Services Agreement will obligate CMB to provide for up to one year (six months
in the case of a change in control) after the termination or expiration, in
consideration of fees in amounts to be negotiated, reasonably requested
termination assistance to facilitate a smooth transition of the responsibility
for the performance of the Back Office Services to New Trustco or its
designee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consequences of the Distribution
UST has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Distribution will
qualify as tax-free to UST and its stockholders under Section 355 of the Code
and that the Asset Transfers involved in the Internal Reorganization will not
be taxable transactions. Receipt of the Private Letter Ruling reasonably
satisfactory to each of UST and Chase is a condition to the respective
obligations of UST and Chase to consummate the Merger. See "The
Merger -- Conditions." Assuming that the Private Letter Ruling is received,
the following is a summary of the material Federal income tax consequences of
the Distribution:
1. A UST stockholder will not recognize any income, gain or loss as
a result of the Distribution.
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2. A UST stockholder will apportion the tax basis of his or her UST
Common Stock between such UST Common Stock and Spinco Common Stock
received in the distribution in proportion to the relative fair market
values of such UST Common Stock and Spinco Common Stock on the
Distribution Date.
3. A UST stockholder's holding period for the Spinco Common Stock
received in the Distribution will include the period during which such
stockholder held the UST Common Stock with respect to which the
Distribution was made, provided that such UST Common Stock is held as a
capital asset by such stockholder as of the Time of Distribution.
4. No gain or loss will be recognized to UST as a result of the
Distribution.
Current Treasury regulations require each UST stockholder who receives
Spinco Common Stock pursuant to the Distribution to attach to his or her
federal income tax return for the year in which the Distribution occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Distribution. UST (or
Spinco on its behalf) will convey the appropriate information to each UST
stockholder of record as of the Distribution Record Date.
Consequences of the Merger
UST has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Merger will qualify
as a tax-free transaction to UST and its stockholders under Section 368(a) of
the Code. Receipt of opinions of counsel to that effect is a condition to the
respective obligations of UST and Chase to consummate the Merger, whether or
not the Service grants the Private Letter Ruling. See "The
Merger -- Conditions". The following is a summary of the material Federal
income tax consequences of the Merger:
1. The Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
2. No gain or loss will be recognized by UST as a result of the
Merger.
3. No gain or loss will be recognized by UST stockholders upon the
receipt of Chase Common Stock in exchange for UST Common Stock pursuant
to the Merger, except that holders of UST Common Stock who receive cash
upon exercise of any available dissenters' rights or cash in lieu of
fractional shares will recognize gain or loss equal to the difference
between such cash and the tax basis in their shares subject to
dissenters' rights or the tax basis allocated to their fractional shares
of UST Common Stock, and such gain or loss will constitute capital gain
or loss if such UST Common Stock is held as a capital asset.
4. The tax basis of the Chase Common Stock received by UST
stockholders who exchange their UST Common Stock for Chase Common Stock
in the Merger will be the same as the tax basis of UST Common Stock
surrendered in exchange therefor.
5. The holding period for the shares of Chase Common Stock received
in the Merger will include the period during which the shares of UST
Common Stock surrendered in exchange therefor were held, provided that
such shares of UST Common Stock were held as capital assets at the
Effective Time.
It is possible that, as a result of the Merger, certain New York state
and local real property transfer and real estate transfer gains taxes (the
"Transfer Taxes") will be imposed on UST stockholders. UST (or Spinco on UST's
behalf) will pay all such Transfer Taxes, if any, directly to state and local
taxing authorities on behalf of all UST stockholders. Any such payments by UST
made on behalf of UST stockholders would result in dividend income to each UST
stockholder, to the extent of UST's current and accumulated earnings and
profits, as determined for Federal income tax purposes. The amount of such
dividend income attributable to each share of UST Common Stock cannot be
calculated at this time but is not expected to be material. UST will be
required to report any such dividend income to the Service if the aggregate
amount of all dividends received by a UST stockholder in the relevant year
(including dividends attributable to UST's payment of the Transfer Taxes) is
$10 or more. UST will notify each stockholder of the amount of all dividends
attributable to such stockholder on a Form 1099-DIV which will be mailed to
such stockholder at a later date.
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It is a condition to the consummation of both the Distribution and the
Merger that the Private Letter Ruling, in form reasonably satisfactory to each
of UST and Chase, be obtained from the Service which affirms that the
Distribution and the Asset Transfers will be tax-free. Each of UST and Chase
has indicated that it will not waive the condition to the Merger requiring
receipt of the Private Letter Ruling. Consequently, UST will not proceed with
either the Distribution or the Merger if the Private Letter Ruling is not
obtained.
The foregoing summary sets forth the material Federal income tax
consequences of the Distribution and the Merger and is included herein for
general information only. To the extent the foregoing summary sets forth
conclusions of law, such conclusions represent the opinion of Cravath, Swaine
& Moore, counsel to UST. Such opinion is based in part on representations
provided by UST and Chase. The summary does not address the Federal income tax
consequences to all categories of UST stockholders, including those who
acquired shares of UST Common Stock pursuant to the exercise of stock options
or otherwise as compensation. EACH UST STOCKHOLDER IS URGED TO CONSULT HIS OR
HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
DISTRIBUTION AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
DESCRIPTION OF CAPITAL STOCK OF CHASE
The following description of certain terms of the capital stock of Chase
does not purport to be complete and is qualified in its entirety by reference
to the Chase Form 10. See "Available Information".
Chase Common Stock
Under the Chase Certificate of Incorporation, Chase is authorized to
issue 500,000,000 shares of Chase Common Stock. At September 30, 1994,
181,289,886 shares of Chase Common Stock were outstanding, 19,011,983 shares
of Chase Common Stock were reserved for issuance pursuant to the Chase Lincoln
First Bank, N.A. 1982 Incentive Stock Plan, The Chase Manhattan 1982 Long-Term
Incentive Plan, The Chase Manhattan 1987 Long-Term Incentive Plan and The
Chase Manhattan 1994 Long-Term Incentive Plan, 3,310,875 shares of Chase
Common Stock were reserved for issuance pursuant to warrants issued in
settlement of a legal action, 14,000,000 shares of Chase Common Stock were
reserved for issuance pursuant to The Chase Manhattan Stock Option Program for
Employees, and 9,596,151 shares of Chase Common Stock were reserved for
issuance pursuant to the Chase's Dividend Reinvestment and Stock Purchase
Plan.
Holders of shares of Chase Common Stock are entitled to one vote per
share and, subject to the rights, if any, of holders of shares of the
outstanding series of Chase Preferred Stock (as defined below), have equal
rights to participate in dividends when declared and, in the event of
liquidation, in the net assets of Chase available for distribution to
stockholders. See "Description of Capital Stock of Chase -- Chase Preferred
Stock". Chase may not declare any dividends on, or make any payment on account
of the purchase, redemption or other retirement of, Chase Common Stock unless
full cumulative dividends, where applicable, have been paid or declared and
set apart for payment upon all outstanding shares of Chase Preferred Stock and
Chase is not in default or in arrears with respect to any sinking or other
analogous fund or any call for tender obligations, or any other agreement for
the purchase, redemption or other retirement of any shares of Chase Preferred
Stock. Holders of shares of Chase Common Stock do not have redemption or
sinking fund rights, and, none of the holders of shares of Chase Common Stock
is entitled to preemptive rights or preferential rights to subscribe for
shares of Chase Common Stock or any other securities of Chase, except for
certain Junior Participating Preferred Stock Purchase Rights that are attached
to each share of Chase Common Stock, which are exercisable or transferable
separately from shares of Chase Common Stock only upon the occurrence of
certain events including the acquisition by a person or group of affiliated or
associated persons of 20% or more of the outstanding shares of Chase Common
Stock. See "Description of Capital Stock of Chase -- Description of Chase
Rights Plan". Shares of Chase Common Stock are fully paid and nonassessable;
however, Federal law (12 U.S.C. 55) provides for the enforcement of any pro
rata assessment of stockholders of a national bank to cover impairment of
capital by sale, to the extent necessary, of the stock of any assessed
stockholder failing to pay his assessment, and Chase, as the stockholder of
CMB and other
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national banking subsidiaries, is subject to such assessment and sale. The
shares of Chase Common Stock are listed on the NYSE. The transfer agent and
registrar for the Chase Common Stock is Mellon Securities Trust Company.
The Chase Certificate of Incorporation includes a "fair price provision"
that would require a 75% stockholder vote for approval of certain business
combinations, including certain mergers, asset sales, security issuances,
recapitalization and liquidations, involving Chase or its subsidiaries and
certain acquiring persons (namely, a person, entity or specified group which
beneficially owns more than 10% of the voting stock of Chase), unless the
"fair price" and other procedural requirements of the provision are met, or
unless approved by a majority of directors who are not affiliated with the
acquiring party. This provision includes a requirement of a 75% stockholder
vote to amend or repeal it. The Chase Certificate of Incorporation also
provides for classification of the Chase Board into three classes and includes
related provisions requiring (i) advance notice of stockholder nominations of
directors, (ii) limitations on filling newly created directorships and
vacancies, (iii) removal of directors only for cause and by vote of the
holders of at least 75% of the shares entitled to vote, (iv) a limitation on
action by written consent of holders of Chase Common Stock other than at a
meeting of stockholders and, (v) a requirement of a 75% stockholder vote to
amend or repeal such provisions.
Chase Preferred Stock
Under the Chase Certificate of Incorporation, Chase is authorized to
issue up to 100,000,000 shares of preferred stock, without par value ("Chase
Preferred Stock"), in one or more series, with such voting powers, full or
limited but not to exceed one vote per share, or without voting powers and
with such designations, preferences and relative, participating, optional or
other voting rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions of the Chase
Board providing for the issue thereof.
At September 30, 1994, there were 56,000,000 shares of Chase Preferred
Stock outstanding and having an aggregate stated value of approximately
$1,400,000,000. The currently outstanding series of Chase Preferred Stock that
have been designated as Chase Preferred Stock are: Preferred Stock, 10 1/2%
Series G, with a stated value of $25 per share, Preferred Stock, 9.76% Series
H, with a stated value of $25 per share, Preferred Stock, 10.84% Series I,
with a stated value of $25 per share, Preferred Stock, 9.08% Series J, with a
stated value of $25 per share, Preferred Stock, 8 1/2% Series K, with a stated
value of $25 per share, Preferred Stock, 8.32% Series L, with a stated value
of $25 per share, Preferred Stock, 8.40% Series M, with a stated value of $25
per share, and Preferred Stock, Adjustable Rate Series N, with a stated value
of $25 per share. Chase Preferred Stock ranks senior to Chase's authorized but
unissued Junior Participating Preferred Stock.
Holders of shares of Chase Preferred Stock generally have only contingent
voting rights with respect to the election of directors. In the event of
liquidation, before any distribution to the holders of Chase Common Stock, the
holders of the shares of each outstanding series of Chase Preferred Stock
generally are entitled to receive an amount equal to the stated value of such
shares, plus accrued and unpaid dividends. At September 30, 1994, such
preferential amounts were approximately $1.4 billion in the aggregate,
exclusive of any dividend accruals.
Description of Chase Rights Plan
The following description of certain terms of the "Chase Rights Plan"
does not purport to be complete and is qualified in its entirety by reference
to the Rights Agreement, a copy of which was filed as an Exhibit to Chase's
Annual Report on Form 10-K for the year ended December 31, 1988, and is
incorporated herein by reference.
Pursuant to the Rights Agreement dated as of February 15, 1989, there is
attached to each share of Chase Common Stock one Junior Participating
Preferred Stock Purchase Right (a "Right"). Each Right entitles the holder to
buy from Chase one one-hundredth of a share of Junior Participating Preferred
Stock at an exercise price of $125, subject to adjustment.
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The Rights will expire on February 27, 1999, unless redeemed earlier and
will not be exercisable or transferable separately from the shares of Chase
Common Stock to which they are attached until the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership
of 20% or more of the outstanding shares of Chase Common Stock (the "Stock
Acquisition Date") or (ii) 10 business days following a public announcement of
the commencement of a tender offer or exchange offer that would result in the
offeror beneficially owning 25% or more of the outstanding shares of Chase
Common Stock.
The Rights are redeemable, for cash or other consideration deemed
appropriate by the Chase Board, at $0.01 per Right, subject to adjustment, at
any time prior to 10 days after the Stock Acquisition Date, which redemption
period may be extended under certain conditions.
In the event that any person becomes an Acquiring Person other than
pursuant to an offer for all shares of Chase Common Stock which independent
directors of Chase determine to be fair to and in the best interests of Chase
and its stockholders (a "Flip-In Event"), each holder of a Right, other than
Rights beneficially owned by an Acquiring Person and certain transferees
(which Rights will be void), will thereafter have the right to acquire, upon
exercise, shares of Chase Common Stock (or, in certain circumstances,
property) having a value equal to two times the exercise price of the Right.
However, Rights will not be exercisable following the occurrence of a Flip-In
Event until such time as the Rights are no longer redeemable by Chase. At any
time after the occurrence of a Flip-In Event, the Chase Board may exchange the
Rights (other than Rights which have become void as described above), in whole
or in part, at an exchange ratio of one share of Chase Common Stock per Right,
subject to adjustment.
In the event that, at any time following the Stock Acquisition Date, (i)
Chase is acquired in a merger or other business combination transaction in
which Chase is not the surviving corporation (other than a merger which
follows an offer described in the preceding paragraph) or (ii) more than 50%
of Chase's assets or earning power is sold or transferred, each holder of a
Right (except Rights which have become void as set forth above) will
thereafter have the right to acquire, upon exercise, shares of common stock of
the acquiring company having a value equal to two times the exercise price of
the Right. Until a Right is exercised, the holder thereof will have no rights
as a stockholder of Chase.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Chase in a
manner which causes the Rights to become discount Rights unless the offer is
conditional on a substantial number of Rights being acquired.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
CHASE COMMON STOCK AND UST COMMON STOCK
The rights of the holders of Chase Common Stock are governed by the Chase
Certificate of Incorporation and the Chase Bylaws and by the Delaware General
Corporation Law (the "DGCL"), while the rights of the holders of UST Common
Stock are governed by UST's certificate of incorporation (the "UST Certificate
of Incorporation") and UST's bylaws (the "UST Bylaws") and by the NYBCL. Upon
consummation of the Merger, the stockholders of UST, a New York corporation,
will become stockholders of Chase, a Delaware corporation. The Chase
Certificate of Incorporation and the Chase Bylaws will remain in effect after
the Merger. Below is a summary of certain differences between the rights of
holders of Chase Common Stock, on the one hand, and UST Common Stock, on the
other, resulting from differences in governing law and the respective Chase
and UST certificates of incorporation and bylaws.
The following summary does not purport to be a complete statement of the
rights of Chase stockholders under the Chase Certificate of Incorporation and
the Chase Bylaws and the DGCL compared with the rights of holders of UST
Common Stock under the UST Certificate of Incorporation and the UST Bylaws and
the NYBCL. This summary is qualified in its entirety by reference to the
certificates of incorporation and bylaws of each of Chase and UST, the DGCL
and the NYBCL.
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Size and Classification of the Board of Directors
The Chase Certificate of Incorporation divides the Chase Board into three
classes of directors, each having staggered three-year terms. However, any
director elected by holders of a class of stock having dividend or liquidation
preferences over the Chase Common Stock is not subject to this provision. The
Chase Bylaws require a minimum of three directors, but the exact number is set
by resolution of the Chase Board. The Chase Board is currently comprised of
eighteen directors.
UST also divides the UST Board into three classes of directors, each
having staggered three-year terms. The UST Board fixes the number of directors
above the minimum number of nine fixed by the UST Bylaws. The UST Board is
currently comprised of twenty-two directors.
Stockholder Nominations
The Chase Bylaws, pursuant to authority granted in the Chase Certificate
of Incorporation, permit any stockholder entitled to vote for a director to
nominate director candidates if written notice conforms to the timing and
content requirements established in the Chase Bylaws. The UST Certificate of
Incorporation and UST Bylaws contain no provision permitting nominations of
directors by stockholders.
Duties of Directors
Section 717(b) of the NYBCL permits a board of directors to consider, in
transacting its business, but without abrogating any duty owed by the board,
the long-term and short-term effects of an action on the corporation; its
stockholders; the potential growth, development, productivity and
profitability of the corporation; current employees; retired employees and
other beneficiaries of the corporation entitled to receive benefits from the
corporation; customers and creditors of the corporation; and the ability of
the corporation to provide, as a going concern, goods, services, employment
opportunities and other contributions to the communities in which it does
business. The DGCL does not contain a similar provision. Delaware courts have
permitted directors to consider various constituencies provided there exists
some rationally related benefit to the stockholders. The Chase and UST
Certificates of Incorporation and Bylaws do not require specific
considerations that must underlie decisions made by their respective boards of
directors.
Removal of Directors
Generally, under Section 141(k) of the DGCL, holders of a majority of
voting shares may remove any director or the entire board of directors with or
without cause. Corporations with a classified board, like Chase, may limit
removal to circumstances in which there is cause. If the holders of a class of
shares may elect one or more directors, their vote, rather than the vote of
all outstanding shares, may remove the director without cause.
The Chase Certificate of Incorporation and the Chase Bylaws provide for
the removal of any director for cause upon a vote of 75% of the outstanding
voting stock or a majority of the directors. This provision is subject to the
rights of holders of certain shares having dividend or liquidation preferences
over Chase Common Stock.
Section 706 of the NYBCL permits stockholders to remove any or all
directors for cause, and, if the certificate of incorporation or bylaws
permits, without cause. In addition, if allowed by the certificate of
incorporation or by a stockholder-approved bylaw, the board of directors may
remove any director for cause. When a class or series of stock is entitled to
elect one or more directors, any director so elected may be removed only by
the applicable vote of that class or series. The state attorney general or
holders of 10% of all outstanding shares may bring legal action to remove a
director for cause.
Any UST director may be removed for cause by vote of the stockholders or
by a majority of all the directors.
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Newly Created Directorships and Vacancies
Under Section 223 of the DGCL, unless the governing documents of a
corporation provide otherwise, a majority vote of the directors then in office
may fill vacancies and newly created directorships, even if the number of
current directors is less than a quorum or only one director remains. If the
directors filling an open slot on the board constitute less than a majority of
the whole board (as measured before an increase in the size of the board), the
Delaware Court of Chancery may, upon application of stockholders holding at
least 10% of the outstanding voting shares, summarily order an election to
fill the open slots or replace directors chosen by the directors then in
office. Unless otherwise provided in the certificate of incorporation or
bylaws, when one or more directors resign effective at a future date, a
majority of directors then in office, including those who have so resigned,
may vote to fill the vacancy.
The Chase Certificate of Incorporation and the Chase Bylaws permit the
majority of directors in office to fill vacancies and newly created
directorships subject to the rights of holders of shares having certain
preferences over the Chase Common Stock. Directors appointed to these vacant
positions remain in office until the term of their class expires.
Under Section 705 of the NYBCL, the board of directors, even if less than
a quorum, may elect persons to newly created directorships and vacancies
occurring for any reason other than removal without cause, unless the
corporation's governing documents require the stockholders to fill such
vacancies. Unless the certificate of incorporation or a stockholder-approved
bylaw provides otherwise, vacancies due to removal without cause must be
filled by a vote of stockholders. A director elected to fill a vacancy, unless
elected by the stockholders, holds office until the next meeting of
stockholders at which the election of directors is in the regular course of
business.
The UST Bylaws provide that newly created directorships resulting from an
increase in the number of directors and by vacancies occurring in the UST
Board for any reason may be filled either by a vote of the stockholders or by
a vote of the majority of the directors then in office, even if such directors
do not constitute a quorum. A director elected to fill a vacancy by a majority
vote of the UST Board shall only hold office until the election of his or her
successor at the stockholder meeting at which the election of directors is in
the regular business.
Limitation on Directors' Liability
Section 102(b)(7) of the DGCL allows a corporation, through its
certificate of incorporation, to limit or eliminate the personal liability of
directors to the corporation and its stockholders for monetary damages for
breach of fiduciary duty. However, this provision excludes any limitation on
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for wilful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock or (iv) for any transaction
from which the director derives an improper personal benefit.
The Chase Certificate of Incorporation eliminates a director's liability
for monetary damages for breach of fiduciary duty to the extent permitted by
Delaware law. Any amendment by the stockholders limiting this provision is
effective only as to acts or omissions by a director occurring after the time
of the amendment.
Under Section 402(b) of the NYBCL, a corporation, through its certificate
of incorporation, may limit or eliminate the personal liability of directors
to the corporation or its stockholders for damages for breach of duty. This
limitation on liability is not available if a judgment or final adjudication
against a director establishes that his or her acts or omissions (i) were in
bad faith, (ii) involved intentional misconduct or a knowing violation of law,
(iii) involved financial profit or other advantage to which the director was
not legally entitled, or (iv) violated the laws regarding the declaration of
dividends, the purchase or redemption of shares, certain payments to
stockholders after dissolution and loans to directors.
The UST Certificate of Incorporation eliminates directors' liability to
the extent permitted by law. Any modification of this provision of the UST
Certificate of Incorporation will not affect any right or protection of a
director with respect to an act or omission occurring before or at the time of
the modification.
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Indemnification of Directors and Officers
Section 145 of the DGCL provides that a corporation may indemnify any
person made a party or threatened to be made a party to any type of proceeding
(other than an action by or in right of the corporation) because he or she is
or was a director, officer, employee or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; or in a criminal proceeding, if he or she had no reasonable cause
to believe his or her conduct was unlawful. Expenses incurred by an officer or
director (or other employees or agents as deemed appropriate by the board of
directors) in defending civil or criminal proceedings may be paid by the
corporation in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount
if it shall be ultimately determined that such person is not entitled to be
indemnified by the corporation. To indemnify a party, the corporation must
determine that the party met the applicable standards of conduct. The
corporation can make this finding through (i) a majority vote of directors not
parties to the action notwithstanding that such directors do not constitute a
quorum, (ii) in certain circumstances, the board acting upon written opinion
of independent legal counsel, or (iii) in certain circumstances, the
stockholders. The indemnification rights granted in or pursuant to Section 145
are not exclusive of other indemnification rights.
The Chase Certificate of Incorporation requires the indemnification of
officers, directors, employees and agents to the extent authorized by Delaware
law. Under this provision, Chase will indemnify the heirs, executors and
administrators of persons qualifying for indemnification. The Chase
Certificate of Incorporation also states that this provision and the Delaware
statutory provision are not exclusive of any other rights such person has to
indemnification.
The Chase Bylaws further amplify the rights of directors and officers to
indemnification. The Chase Bylaws make it clear that if the right is altered
or repealed, it continues to exist with respect to acts or omissions occurring
before or concurrently with such modification or repeal of such right. The
Chase Bylaws limit the rights of any director or officer seeking
indemnification with respect to a proceeding initiated by such officer or
director to instances in which the Chase Board authorized the proceeding. The
Chase Bylaws provide for the payment of all reasonable expenses including
reasonable attorney's fees incurred by a director with respect to a pending,
threatened or completed proceeding in advance of its final disposition
provided an undertaking as required by Delaware law is executed by the officer
or director seeking indemnification. The Chase Bylaws also detail the
procedures for seeking indemnification and expressly authorize proceedings to
enforce claims to indemnification. The Chase Bylaws authorize the corporation
to enter agreements extending indemnification rights to the fullest extent of
the law and provide that the indemnification rights outlined in the Chase
Bylaws are not exclusive of any other indemnification rights.
Section 722 of the NYBCL authorizes the indemnification of officers and
directors if such person (i) acted in good faith; (ii) in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; and (iii) in a criminal proceeding, without reasonable cause to
believe his or her conduct was unlawful. Under Section 723 of the NYBCL an
officer or director who successfully defends a proceeding is entitled to
indemnification. In certain other circumstances, the corporation must find
that the director or officer met the appropriate standard of conduct. The
corporation may make this finding through (i) the board, acting as a quorum of
directors not parties to the action; (ii) in certain circumstances, the board
acting upon the written opinion of independent legal counsel; or (iii) in
certain circumstances, the stockholders. In some situations, a court, pursuant
to Section 724 of the NYBCL, may award indemnification. Section 725 of the
NYBCL sets out the conditions for advancing the payment of expenses and the
circumstances in which the corporation must notify stockholders when it makes
indemnification payments. Section 721 provides that the indemnification rights
granted in the NYBCL are not exclusive of other indemnification rights as long
as those other rights do not attach when a judgment or other final
adjudication establishes that a director or officer (i) acted in bad faith or
with active and deliberate dishonesty and that such acts were material to the
cause of action adjudicated or (ii) gained a personal financial or other
advantage to which the director or officer was not legally entitled.
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The UST Bylaws provide that UST will indemnify any current or past
director or officer who is party to an actual or threatened action by virtue
of such status. Under the UST Bylaws, UST (i) may not indemnify any director
or officer when a final judgment establishes that such director or officer (A)
acted in bad faith or with active and deliberate dishonesty and that such acts
were material to the cause of action adjudicated or (B) gained a personal
financial or other advantage to which the director or officer was not legally
entitled and (ii) is not required to indemnify any director or officer when
(A) the actual or threatened action was settled without final adjudication or
without the consent of UST or (B) such officer or director is entitled to
indemnification pursuant to an insurance policy without regard to the
provision of the UST Bylaws. Any amendment which prohibits or otherwise limits
indemnification rights will not affect any party until 60 days following his
or her notice of such amendment and will not apply to any act or omission
occurring before such 60th day. The UST Bylaws also permit UST to enter into
indemnification agreements with directors, officers and employees. The UST
Bylaws further state that the indemnification rights provided thereunder are
not exclusive of other indemnification rights protecting a party entitled to
indemnification under the UST Bylaws.
Issuance of Rights or Options to Purchase Shares to Directors, Officers and
Employees
The DGCL and the Chase Certificate of Incorporation and Chase Bylaws do
not expressly address the procedure for issuing rights and options to purchase
stock to directors, officers, and employees. Under Section 505(d) of the
NYBCL, a corporation cannot issue rights or options to purchase stock to
directors, officers, or employees without the approval of a majority of all
outstanding voting shares. The UST Certificate of Incorporation and UST Bylaws
do not address this issue.
Loans to Directors
Section 143 of the DGCL allows a Delaware corporation to lend money to or
guarantee an obligation of an officer or employee, including one who acts as a
director, if the assistance is reasonably expected to benefit the corporation.
Such assistance may be provided without stockholder approval. Section 714 of
the NYBCL requires stockholder approval of any loan made by the corporation to
a director. A director seeking a loan is prohibited from voting his or her
shares in such vote of stockholders. The certificate of incorporation and
bylaws of each of Chase and UST do not specifically address loans to
directors.
Dividends
Subject to additional restrictions in a corporation's certificate of
incorporation, Section 170 of the DGCL allows a Delaware corporation to pay
dividends out of surplus or, if there is no surplus, out of its net profits
for the fiscal year in which the dividend is declared or the preceding fiscal
year. Under Section 510 of the NYBCL, a New York corporation may pay dividends
only out of surplus. Both New York and Delaware corporations generally may
revalue assets in connection with the determination of the amount of surplus
available for the declaration and payment of dividends. Neither Chase nor UST
has limited its ability to issue dividends beyond the applicable legal
standards governing dividends. See "The Companies -- Chase".
Action by Stockholders Through Written Consent
Under Section 228(a) of the DGCL, unless otherwise provided in a
corporation's certificate of incorporation, any action required to be taken at
an annual or special meeting of the stockholders may be taken in the absence
of a meeting, without prior notice and without a vote. Such action may be
taken by the written consent of stockholders in lieu of meeting setting forth
the action so taken and signed by the holders of outstanding stock
representing the number of shares necessary to take such action at a meeting
at which all shares entitled to vote were present and voted. The Chase
Certificate of Incorporation and Chase Bylaws only permit stockholders of
Chase Common Stock to act by written consent in lieu of annual or special
meetings.
Section 615(a) of the NYBCL allows stockholders to act only by unanimous
written consent in lieu of a meeting, unless action by less than unanimous
written consent is authorized in the certificate of incorporation or bylaws.
The UST Bylaws provide that stockholder action may be taken by the written
consent of
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stockholders in lieu of a meeting setting forth the action so taken and signed
by the holders of all outstanding shares entitled to vote thereon.
Special Meetings
Under Section 211(d) of the DGCL and Section 602(c) of the NYBCL, special
meetings of stockholders may be called by the board of directors and by such
other person or persons as may be authorized to do so by the corporation's
certificate of incorporation or bylaws. Under the Chase Bylaws, the Chase
Board, the Chairman of the Board or the President may call a special meeting
and the Secretary or Assistant Secretary must call a special meeting upon the
written request, stating the purpose of the meeting, of holders of at least
25% of the outstanding stock entitled to vote at such meeting. Under the UST
Bylaws, only the UST Board, the Chairman, the President or a Vice Chairman of
the UST Board may call a special meeting of the stockholders. Only business
pertaining to the purpose of the special meeting, as specified in the call of
the meeting, may be transacted at such meeting.
Cumulative Voting
Though Section 214 of the DGCL and Section 618 of the NYBCL permit a
certificate of incorporation to provide for cumulative voting for the election
of directors, Chase and UST have not adopted such provisions.
Necessary Vote to Effect Merger (Not Involving Interested Stockholder)
The DGCL requires a majority vote of the shares entitled to vote in order
to effectuate a merger between two Delaware corporations (Section 251(c)) or
between a Delaware corporation and a corporation organized under the laws of
another state (a "foreign corporation") (Section 252(c)). However, unless
required by the certificate of incorporation, Sections 251(f) and 252(e) do
not require a vote of the stockholders of a constituent corporation surviving
the merger if (i) the merger agreement does not amend that corporation's
certificate of incorporation, (ii) each share of that corporation's stock
outstanding before the effective date of the merger is identical to an
outstanding or treasury share of the surviving corporation after the merger,
and (iii), in the event the merger plan provides for the issuance of common
stock or securities convertible into common stock by the surviving
corporation, the common stock issued and the common stock issuable upon
conversion of the issued securities do not exceed 20% of the shares
outstanding immediately before the effective date of the merger. As long as a
majority of the disinterested directors approve the merger, the Chase
Certificate of Incorporation does not impose more stringent requirements for
the affirmance of a merger.
Section 903(a)(2) of the NYBCL provides for a merger between two or more
New York corporations upon the approval of the holders of two-thirds (or
66 2/3%) of all outstanding shares entitled to vote on the merger and, in
certain circumstances, of a majority of the holders of all outstanding shares
of each class or series. Pursuant to Section 907(b), where the merger is
between one or more New York corporations and one or more foreign
corporations, the foregoing two-thirds (or 66 2/3%) vote (and the majority
vote if applicable) is required only for the domestic corporation. The foreign
corporation must comply with the applicable provisions of the jurisdiction
where it is incorporated. The UST Certificate of Incorporation and the UST
Bylaws do not alter the rules for approval of a merger unless the transaction
involves an interested stockholder (as discussed below).
Business Combinations Involving Interested Stockholders
Section 203(a) of the DGCL prohibits a corporation from engaging in any
business combination with an interested stockholder (defined in Section
203(c)(5) as a 15% stockholder) for a period of three years after the date
that stockholder became an interested stockholder unless (i) before that date,
the board of directors of the corporation approved the business combination or
the transaction transforming the stockholder into an interested stockholder,
or (ii) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, that stockholder owned at least 85% of the
outstanding voting stock (excluding shares owned by directors, officers and
certain employee stock plans) or (iii) on or after the date the stockholder
became "interested," the business combination gained the approval of both the
corporation's
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directors and two-thirds (or 66 2/3%) of the outstanding voting shares not
owned by the interested stockholder voted at a meeting and not by written
consent. Section 203(b)(3) of the DGCL permits a Delaware corporation to
negate this provision through an amendment to the certificate of incorporation
or bylaws adopted by a majority of the outstanding voting shares, in addition
to any other required vote. The amendment is not effective for 12 months
following its adoption and does not apply to business combinations with any
person who became an interested stockholder on or before the amendment's
adoption. Chase has not adopted any such amendment.
The Chase Certificate of Incorporation provides for stricter requirements
for business combinations with interested stockholders (as defined therein) or
their affiliates. The Chase Certificate of Incorporation defines an interested
stockholder as a direct or indirect owner of at least 10% of the outstanding
voting shares. Approval of the business combination requires 75% of the
outstanding voting shares. This high threshold is inapplicable if a majority
of the disinterested directors approve the combination or if certain price and
procedural requirements have been satisfied. See "Description of Capital
Stock -- Chase Common Stock".
Section 912 of the NYBCL differs from Delaware law. Under Section 912 an
"interested stockholder" is one that owns at least 20% of the outstanding
voting shares of a corporation. A New York corporation cannot engage in a
business combination with an interested stockholder for five years following
the acquisition date of an interested stockholder's shares unless the
directors approve the business combination or stock acquisition before the
stockholder's stock acquisition date. Following the five year period, a
corporation cannot enter a business combination with an interested stockholder
unless (i) the directors approve the business combination or the stockholder's
stock acquisition before the stockholder's stock acquisition date; (ii) at a
meeting called for such purpose, the holders of a majority of the outstanding
shares not beneficially owned by an interested stockholder or an associate or
affiliate of an interested stockholder approve the business combination; or
(iii) the business combination satisfies certain price and procedural
requirements. Pursuant to Section 912(d), such restrictions do not apply to a
corporation that has exempted itself by amendment to its bylaws approved by a
vote of the majority of holders of outstanding voting stock, excluding the
voting stock of an interested stockholder or an associate or affiliate of an
interested stockholder. Such an amendment will not become effective for 18
months following its adoption and will not apply to a business combination
with an interested stockholder whose stock acquisition date is on or before
the effective date of the amendment. UST has not adopted any such amendment.
The UST Certificate of Incorporation provides that, to effect a business
combination between UST and an interested stockholder (a holder of 10% of the
outstanding voting shares), 80% of the outstanding voting shares and a
majority of outstanding voting shares held by disinterested stockholders
approve the transaction. The special voting requirement is excused if the
business combination is approved by a majority of the continuing directors.
The term "continuing directors" means those directors not associated with the
interested stockholder who (i) were first elected a director before the time
the interested stockholder became an interested stockholder or (ii) were
designated a continuing director by existing continuing directors. The special
vote is also excused if the business combination satisfies certain procedural
and financial requirements. These procedural requirements also apply in the
case of a merger or consolidation between the corporation and a subsidiary if
the resulting entity would not be subject to the aforementioned requirements
after the merger or consolidation.
Appraisal Rights; Dissenters' Rights
Shareholders dissenting in specified circumstances from certain major
corporate transactions may be entitled to appraisal rights (the right to
receive the fair value of their shares). Sections 262(a) and (b) of the DGCL
provides for appraisal rights only in the case of a statutory merger or
consolidation in which the petitioning stockholder does not consent to the
transaction. Stockholders of a surviving corporation whose vote was not
required under DGCL Sections 251 and 252 are not entitled to appraisal rights.
Unless otherwise provided for in the certificate of incorporation,
stockholders have no appraisal rights in mergers or consolidations in which
they receive shares in the surviving corporation or shares of another
corporation that are publicly listed or held by more than 2,000 holders of
record, cash in lieu of fractional shares of such stock, or any combination
thereof. A corporation may provide in its certificate of incorporation for
appraisal rights in
76
<PAGE>
the event of a sale of all or substantially all of its assets. Chase has not
extended appraisal rights beyond the statutory requirements.
Pursuant to Section 910 of the NYBCL, a stockholder of a New York
corporation who complies with the applicable statutory procedures provided by
Section 623 of the NYBCL is entitled to receive the fair value of his or her
shares provided the dissenting stockholder does not consent to certain
transactions, including a merger or consolidation; a disposition of all or
substantially all of the assets of a corporation; or a share exchange. No
dissenters' rights exist for stockholders of a parent corporation merging with
a 90% owned subsidiary (except under certain circumstances) or stockholders of
the surviving corporation in mergers in which certain substantial rights of
stockholders remain unaffected. Dissenters' rights also do not attach where
the disposition of assets is wholly for cash and conditioned upon the
dissolution of the corporation and the distribution of substantially all of
its assets to stockholders. Under Section 806(b)(6) of the NYBCL, stockholders
have dissenters' rights in the case of certain types of amendments of the
certificate of incorporation. UST has not extended dissenters' rights beyond
the statutory requirements. See "The Merger -- Dissenters' Rights" and
Sections 910 and 623 of the NYBCL, copies of which are attached as Appendix G
hereto.
Redeemable Shares
Pursuant to Section 151(b) of the DGCL, any class of stock may be made
subject to redemption at the option of the corporation or the stockholders, or
upon the happening of a specified event, as long as at the time of redemption
one class of voting stock is not subject to redemption. Section 512(a) of the
NYBCL permits a corporation to issue preferred stock redeemable at the option
of the corporation or the stockholder. Under Sections 512(a), (b) and (c) of
the NYBCL, a corporation may not redeem common stock unless it has outstanding
nonredeemable common stock (except for certain investment and securities
companies and certain government licensees or franchisees), and, unless it is
an investment company, a corporation's common stock may only be redeemed at
the option of the corporation and not at the option of the stockholder. The
Chase and UST Certificates of Incorporation do not address the redemption of
common stock, but each of the Chase Board and the UST Board has broad
authority under its respective certificate of incorporation and bylaws to
designate the characteristics of classes of preferred stock, including
redemption characteristics.
Selective Repurchase of Company Stock
The DGCL does not prohibit the selective repurchase by a corporation of
its stock at a premium over market price. Delaware courts have permitted the
repurchase of shares at a premium in certain cases. Section 513(e) of the
NYBCL prohibits a New York corporation, subject to the provisions regarding
merger with an interested stockholder (Section 912), from making certain
offers to purchase stock unless such offer is extended to all stockholders.
The corporation may not purchase more than 10% of its stock from a stockholder
who has beneficially owned the shares for less than two years at a price
higher than the market price unless it is approved by the board of directors
and a majority of all outstanding voting shares. Neither Chase's nor UST's
Certificate of Incorporation or Bylaws refer to selective repurchases of
common stock.
Warrants or Options
Under Section 157 of the DGCL, rights or options to purchase shares of
any class of stock may be authorized by a corporation's board of directors
subject to the provisions of the certificate of incorporation. However,
various other legal requirements would generally make stockholder approval of
stock option plans or warrants either necessary or desirable. The Chase
Certificate of Incorporation and Chase Bylaws do not address the issuance of
rights or options.
Section 505 of the NYBCL allows, subject to provisions in the certificate
of incorporation, a corporation to issue rights and options pursuant to
conditions and terms established by the board. Pursuant to the UST Certificate
of Incorporation, only the UST Board can determine the terms and conditions of
rights, options and warrants for shares.
77
<PAGE>
Preemptive Rights
Under Section 102(b)(3) of the DGCL, except in certain circumstances not
applicable to Chase, absent an express provision in a corporation's
certificate of incorporation, a stockholder does not, by operation of law,
possess preemptive rights to subscribe to an additional issue of stock. The
Chase Certificate of Incorporation does not grant preemptive rights, except to
the extent that the Chase Certificate of Incorporation authorizes the issuance
of preferred stock with any rights (other than voting rights in excess of one
vote per share) as may be expressed in a resolution adopted by the Chase Board
with respect to the issue of preferred stock by Chase.
Under Section 622 of the NYBCL, unless a certificate of incorporation
provides otherwise, stockholders possess certain preemptive rights by
operation of law. In general, these rights allow stockholders whose unlimited
dividend rights or voting rights would be adversely affected by the issuance
of additional shares of stock to purchase, on terms and conditions set by the
board of directors, that proportion of such new issue of stock necessary to
preserve the relative dividend or voting rights of such stockholders. Unless
otherwise provided in the certificate of incorporation, certain types of stock
are not subject to preemptive rights. The UST Certificate of Incorporation
provides that no holder of UST shares of any class has preemptive rights
unless the UST Board specifically grants such rights.
Amendment of Certificate of Incorporation
Section 242 of the DGCL permits a Delaware corporation to amend its
certificate of incorporation in any respect provided the amendment contains
only provisions that would be lawful in an original certificate of
incorporation filed at the time of amendment. To amend a certificate of
incorporation, the board must adopt a resolution presenting the proposed
amendment. In addition, a majority of the shares entitled to vote, as well as
a majority of shares by class of each class entitled to vote, must approve the
amendment to make it effective. When the substantial rights of a class of
shares will be affected by an amendment, the holders of those shares are
entitled to vote as a class even if the shares are non-voting shares. When
only one or more series in a class of shares, and not the entire class, will
be adversely affected by an amendment, only the affected series may vote as a
class. The right to vote as a class may be limited in certain circumstances.
Any provision in the certificate of incorporation which requires a greater
vote than required by law cannot be amended or repealed except by such greater
vote. In its resolution proposing an amendment, the board may insert a
provision allowing the board to abandon the amendment, without concurrence by
stockholders, after the amendment has received stockholder approval but before
its filing with the Secretary of State.
With some exceptions, Chase may amend the Chase Certificate of
Incorporation as provided by the Delaware statute. Such exceptions require the
approval of 75% of the outstanding voting stock for certain actions, including
amendments to the provisions governing business combinations with interested
stockholders, the election of directors, and special meetings and actions of
stockholders. See "Description of Capital Stock of Chase -- Chase Common
Stock".
Section 801 of the NYBCL provides that a New York corporation may amend
its certificate of incorporation in any respect provided the amendment
contains only provisions that would be lawful if the certificate were an
original certificate filed at the time of the amendment. To enact an
amendment, the board of the corporation must authorize the amendment followed
by the authorization of a majority of the outstanding shares entitled to vote.
The board acting alone can amend the corporation's address or registered agent
for service of process. When an amendment of the certificate would affect the
substantial rights of the holders of a class of stock, Section 804(a) of the
NYBCL provides that the enactment of the amendment requires the approval of a
majority of the outstanding shares of the affected class in addition to a
majority of all outstanding voting shares. If only certain series within any
class of shares are adversely affected by a proposed amendment, then each
adversely affected series may vote on the amendment, but any series within
classes of shares which are unaffected may not vote on the amendment.
The UST Certificate of Incorporation does not vary from the statutory
provisions except with respect to any amendments to the provisions governing
transactions with interested stockholders. An amendment of such provisions
requires the approval of 80% of all outstanding voting shares as well as a
majority of outstanding voting shares held by disinterested stockholders. This
special voting requirement does not apply if a majority of
78
<PAGE>
continuing directors recommends the amendment. In this circumstance,
continuing directors consist of (i) directors not associated with an
interested stockholder who (a) were first elected a director before the time
the interested stockholder became an interested stockholder or (b) were
designated a continuing director by existing continuing directors or (ii) if
no business combination with an interested stockholder is pending, any
director who sat on the board when the original provision regarding interested
stockholders was approved by the stockholders.
Amendment of Bylaws
Section 109(a) of the DGCL provides that the stockholders entitled to
vote have the power to adopt, amend, or repeal bylaws and that, in addition, a
corporation may, in its certificate of incorporation, confer such powers on
its board of directors. In accordance with the Chase Certificate of
Incorporation and the Chase Bylaws, the Chase Board also has authority to
make, alter, amend, or repeal the Chase Bylaws.
Section 601(a) of the NYBCL grants stockholders entitled to elect
directors the power to adopt, amend or repeal bylaws. The board of directors
may also exercise this power if permitted in the certificate of incorporation
or by a stockholder-approved bylaw. Stockholders retain the right to amend or
repeal any bylaw adopted by the board. The UST Bylaws may be amended or
repealed by holders of shares entitled to vote in the election of directors.
The UST Board also has the power to amend the UST Bylaws with the exception of
stockholder-approved Bylaws specifically forbidding amendment or repeal by the
UST Board.
EXPERTS
The consolidated statements of condition of UST as of December 31, 1993
and 1992 and the consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993, incorporated by reference in this Proxy
Statement-Prospectus, have been incorporated herein in reliance on the report,
which includes an explanatory paragraph regarding the adoption of new
accounting standards for postretirement benefits other than pensions and
income taxes, of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Chase and its subsidiaries
incorporated in this Proxy Statement-Prospectus and the Chase Registration
Statement by reference to the Chase Annual Report on Form 10-K for the year
ended December 31, 1993, have been incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
VALIDITY OF CHASE SHARES
The validity of the Chase Common Stock to be issued pursuant to the terms
of the Merger Agreement will be passed upon for Chase by Robert B. Adams,
Senior Vice President and Deputy General Counsel of Chase and CMB. As of
September 30, 1994, Mr. Adams was the beneficial owner of or had options to
acquire less than 0.1% of the outstanding Chase Common Stock.
79
<PAGE>
BENEFICIAL OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of UST Common Stock as of December 31, 1994, by (i) each person
known by UST to own more than five percent of either class of the outstanding
UST Common Stock, (ii) each director of UST, (iii) each of the named executive
officers of UST and (iv) all directors and executive officers as a group.
Unless otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of UST Common Stock shown as
beneficially owned by them.
<TABLE>
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ---------------------------- ----------------------- --------
<S> <C> <C>
401(k) Plan and ESOP of 1,335,133 shares (in a 14.13
United States Trust Company fiduciary capacity)(1)
of New York and Affiliated
Companies
114 West 47th Street
New York, New York 10036
GeoCapital Corporation 618,750 shares 6.55
767 Fifth Avenue (with sole dispositive
New York, New York, 10158 power)(2)
United States Trust Company 354,139 shares (in 3.75
of New York and Affiliated fiduciary and agency
Companies capacities)(3)
114 West 47th Street
New York, New York 10036
Eleanor Baum 300(4)(5)
Samuel C. Butler 7,730(4)(5)(6)
Peter O. Crisp 700(4)(5)
Daniel P. Davison 48,095(7)
Philippe de Montebello 800(4)
Paul W. Douglas 1,837(4)(5)
Edwin D. Etherington 8,150
Antonia M. Grumbach 1,300(4)
Frederic C. Hamilton 30,825(4)
Peter L. Malkin 1,200(4)
Jeffrey S. Maurer 19,436(7)(8)(9)
Orson D. Munn 9,500(4)(10)
Donald M. Roberts 35,377(7)(8)(9)
H. Marshall Schwarz 33,625(8)(9)
Philip L. Smith 5,800
John Hoyt Stookey 5,800(4)
Frederick B. Taylor 26,748(7)(8)(9)(11)
Richard F. Tucker 3,325(4)(5)
Carroll L. Wainwright, Jr. 3,600(4)(7)
Robert N. Wilson 950(4)
Frederick S. Wonham 30,404(7)(8)(9)
Ruth A. Wooden 200(4)(5)
All directors and executive
officers as a group
(numbering 22 as a group) 275,702 2.92%
- ---------------
(1) These shares consist of 1,058,834 shares allocated or attributable to the
individual accounts of participants in the 401(k) Plan and ESOP, who have
voting and dispositive power over such shares, and 276,299 shares which
have not been allocated to participant accounts, as to which shares
USTNY, as Trustee of the Plan, may be deemed to have voting and
dispositive power. An independent fiduciary will be appointed to exercise
responsibilities that otherwise would be exercisable by USTNY, as Trustee
of the Plan, with respect to the voting of shares held in the Plan in
connection with the Distribution Proposal and the Merger Proposal. In
February 1995, contributions in the aggregate amount of
80
<PAGE>
$4,275,480 were made to the Plan which, under the terms of the Plan, will
be used to purchase additional shares of UST Common Stock for
participants' accounts under the 401(k) portion of the Plan. These shares
will be acquired through purchases in the market. Assuming that the
shares are purchased at an average price of $66 per share, the Plan will
hold an additional 64,780 shares of UST Common Stock as a result of these
contributions. The number of shares set forth in the table above does not
include these 64,780 shares.
(2) Information herein with respect to GeoCapital Corporation ("GCC") has
been obtained from GCC and from GCC's filings with the Commission
pursuant to Section 13(g) of the Exchange Act by GCC, a registered
investment advisor, and Barry K. Fingerhut and Irwin Lieber, by reason of
their ownership interest in GCC. Such filing further discloses that the
shares were acquired in the ordinary course of business and were not
acquired for the purpose of and do not have the effect of changing or
influencing the control of UST and were not acquired in connection with
or as a participant in any transaction having such purpose or effect.
(3) UST, USTNY and their affiliates have sole voting power as to 16,171 of
such shares, shared voting power as to 42,452 of such shares, sole
dispositive power as to 197,237 of such shares and shared dispositive
power as to 156,902 of such shares. Such shares do not include any shares
held in the 401(k) Plan and ESOP. As a matter of policy, USTNY and its
affiliates vote shares held in an agency capacity only as directed by
customers, and where shares are held as a co-fiduciary, vote such shares
as directed by the other co-fiduciaries. Shares held by UST, USTNY and
their affiliates as sole fiduciary are not voted unless specific voting
instructions are given by a donor or beneficiary pursuant to the
governing trust instrument.
(4) Does not include shares subject to non-employee director stock options
exercisable within 60 days of December 31, 1994 as follows: Dr. Baum and
Ms. Wooden each 1,650 shares, Messrs. Crisp and Malkin each 3,350 shares,
Mr. Munn 2,000 shares, Mr. Wilson 4,650 shares and 5,000 shares by each
of the other non-employee directors (as defined in the Plan) other than
Messrs. Etherington and Smith.
(5) Does not include shares attributable to deferred awards under the Board
Members' Deferred Compensation Plan as follows: Dr. Baum 232 shares, Mr.
Butler 8,670 shares, Mr. Crisp 1,232 shares, Mr. Douglas 5,709 shares,
Mr. Tucker 309 shares and Ms. Wooden 179 shares.
(6) Includes 1,250 shares held in a trust of which Mr. Butler is trustee and
4,914 shares held in a trust in which he has a beneficial interest.
(7) Includes 10,254 shares owned by Mr. Davison's wife, 2,500 shares owned by
Mr. Maurer's wife, 638 shares held in trust by Mr. Maurer's wife for
their children, 3,215 shares owned by Mr. Roberts' daughter, 3,989 shares
owned by Mr. Taylor's wife, 300 shares owned by Mr. Wainwright's wife and
2,250 shares owned by Mr. Wonham's children, with respect to which the
director in each case disclaims beneficial ownership.
(8) Does not include shares subject to employee stock options exercisable
within 60 days of December 31, 1994 as follows: Mr. Schwarz 72,250
shares, Mr. Maurer 53,450 shares, Mr. Taylor 41,200 shares, Mr. Roberts
31,750 shares and Mr. Wonham 26,250 shares.
(9) Does not include shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans as follows: Mr.
Schwarz 78,086 shares, Mr. Maurer 29,008 shares, Mr. Taylor 10,864
shares, Mr. Roberts 55,186 shares and Mr. Wonham 44,064 shares.
(10) Includes 1,700 shares held in a trust of which Mr. Munn is trustee.
(11) Includes 270 shares held in a trust of which Mr. Taylor is sole trustee
and in which he has a beneficial interest.
Other than as set forth above, UST management is aware of no person who,
on the Record Date, was the beneficial owner of more than 5% of outstanding
UST Common Stock. The total number of shares of UST Common Stock owned by all
directors and executive officers of UST as a group accounted for 790,791
shares (approximately 7.93% of outstanding shares of UST Common Stock) as of
December 31, 1994.*
- ---------------
* Includes shares subject to stock options exercisable within 60 days of
December 31, 1994, and shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans and Board Members'
Deferred Compensation Plan.
</TABLE>
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Samuel C. Butler, a director of UST, is a partner in the law firm of
Cravath, Swaine & Moore, which is counsel to UST in connection with the
Distribution and the Merger and which performed services for UST in fiscal
year 1994. The aggregate amount of fees paid by UST to Cravath, Swaine & Moore
was less than 5% of the law firm's gross revenues for the last fiscal year.
Peter L. Malkin, a director of UST, is a partner in the law firm of Wien,
Malkin & Bettex, which performed services for UST in fiscal year 1994. The
aggregate amount of fees paid by UST to Wien, Malkin & Bettex was less than 5%
of the law firm's gross revenues for the last fiscal year.
Antonia M. Grumbach, a director of UST, is a partner in the law firm of
Patterson, Belknap, Webb & Tyler, which performed services for UST in fiscal
year 1994. The aggregate amount of fees paid by UST to Patterson, Belknap,
Webb & Tyler was less than 5% of the law firm's gross revenues for the last
fiscal year.
Carroll L. Wainwright, Jr., a director of UST, is a consulting partner in
the law firm of Milbank, Tweed, Hadley & McCloy, which performed services for
UST in fiscal year 1994. The aggregate amount of fees paid by UST to Milbank,
Tweed, Hadley & McCloy was less than 5% of the law firm's gross revenues for
the last fiscal year.
OTHER BUSINESS
The UST Board does not intend to present to the Special Meeting any
business other than as described in this Proxy Statement-Prospectus and, at
the time this Proxy Statement-Prospectus was printed, was not aware of any
other matters that properly might be presented to the Special Meeting. If any
other business not described herein properly should come before the Special
Meeting, the persons named in the enclosed proxy card(s) or their substitutes
will vote the shares represented by them in accordance with their best
judgment. Discretionary authority for them to do so is contained in the proxy
card(s).
STOCKHOLDER PROPOSALS
UST will hold a 1995 annual meeting of stockholders only if the Merger is
not consummated before the time for such meeting. In the event that such a
meeting is held, as was indicated in the proxy statement for the 1994 annual
meeting of stockholders, stockholder proposals intended to be presented at
UST's 1995 annual meeting must have been received by UST at its principal
executive offices by November 11, 1994 in order to be considered for inclusion
in UST's proxy statement and proxy cards for the 1995 annual meeting.
82
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<TABLE>
INDEX OF DEFINED TERMS
Term Page
- -------------------------------------------------------------------------------------- ----
<S> <C>
Acquiring Person...................................................................... 70
AIP................................................................................... 48
Asset Management System............................................................... 45
Asset Transfers....................................................................... 56
Average Value of Chase Common Stock................................................... 6
Back Office Services.................................................................. 65
Bank Merger........................................................................... 25
Bank Processing Services.............................................................. 65
Broadway Lease........................................................................ 54
Capital Notes......................................................................... 40
Cash Payment.......................................................................... 47
Certificate of Merger................................................................. 37
Certificates.......................................................................... 37
Chase................................................................................. 1
Chase Acquired Business............................................................... 5
Chase Acquired Company To Be Merged................................................... 29
Chase Assets.......................................................................... 53
Chase Board........................................................................... 12
Chase Bring Down Certificate.......................................................... 45
Chase Bylaws.......................................................................... 35
Chase Certificate of Incorporation.................................................... 35
Chase Common Stock.................................................................... 1
Chase Form 8-A........................................................................ 3
Chase Form 10......................................................................... 3
Chase Liabilities..................................................................... 54
Chase Maryland........................................................................ 29
Chase Parties......................................................................... 58
Chase Preferred Stock................................................................. 69
Chase Registration Statement.......................................................... 2
Chase Rights Plan..................................................................... 69
Chase USA............................................................................. 29
Closing............................................................................... 37
Closing Date.......................................................................... 1
CMB................................................................................... 5
CMB Bank Merger Agreement............................................................. 42
Code.................................................................................. 11
Commission............................................................................ 2
continuing directors.................................................................. 76
Contribution Agreement................................................................ 9
Contribution Asset Transfers.......................................................... 53
Contribution Assets................................................................... 53
Contribution Liabilities.............................................................. 54
Conversion Number..................................................................... 6
Core Businesses....................................................................... 5
CRA................................................................................... 42
CS First Boston....................................................................... 9
83
<PAGE>
Term Page
- -------------------------------------------------------------------------------------- ----
Deductible Amount..................................................................... 60
Delayed Asset......................................................................... 54
Delayed Liability..................................................................... 54
Determined Value...................................................................... 63
DGCL.................................................................................. 70
Directors Option Plan................................................................. 62
Dissenting Holder..................................................................... 50
Distribution.......................................................................... 1
Distribution Agreement................................................................ 1
Distribution Asset Transfers.......................................................... 56
Distribution Assets................................................................... 57
Distribution Documents................................................................ 37
Distribution Liabilities.............................................................. 57
Distribution Proposal................................................................. 1
Distribution Record Date.............................................................. 9
EBIT.................................................................................. 34
Effective Time........................................................................ 1
efficiency ratio...................................................................... 18
Enhanced Pension Benefit.............................................................. 64
Exchange Act.......................................................................... 2
FDIC.................................................................................. 10
Flip-In Event......................................................................... 70
foreign corporation................................................................... 75
Form 10............................................................................... 2
GCC................................................................................... 81
GSS................................................................................... 35
IBES.................................................................................. 34
Information Statement................................................................. 2
InfoServ.............................................................................. 35
interested stockholder................................................................ 76
Internal Reorganization............................................................... 9
Letter of Instruction................................................................. 7
LTM................................................................................... 33
Merger................................................................................ 1
Merger Agreement...................................................................... 1
Merger Proposal....................................................................... 1
MF Service Company.................................................................... 25
MF Service Company Retained Liabilities............................................... 57
NASD.................................................................................. 2
New Trustco........................................................................... 6
New UST Parties....................................................................... 59
NYBCL................................................................................. 9
NYSE.................................................................................. 8
NYSE Tape............................................................................. 6
1981 Option Plan...................................................................... 62
1986 Option Plan...................................................................... 62
1989 Option Plan...................................................................... 62
1995 and 1996 Performance Cycles...................................................... 49
84
<PAGE>
Term Page
- -------------------------------------------------------------------------------------- ----
OCC................................................................................... 10
ORE................................................................................... 21
PDI................................................................................... 19
Post Closing Covenants Agreement...................................................... 11
Pre-1987 ISO's........................................................................ 63
Private Letter Ruling................................................................. 8
Processing Business................................................................... 6
Record Date........................................................................... 10
Related Back Office................................................................... 6
Required Consent...................................................................... 54
Retained Employee..................................................................... 61
Retained Plans........................................................................ 62
Retention Amount...................................................................... 57
Retirement Plan....................................................................... 49
Right................................................................................. 69
Securities Act........................................................................ 2
Service............................................................................... 8
Services Agreement.................................................................... 11
Services Agreement Term Sheet......................................................... 42
Severance Benefit Payment............................................................. 64
Special Meeting....................................................................... 1
SFAS 109.............................................................................. 13
Spinco................................................................................ 1
Spinco Assets......................................................................... 57
Spinco Common Stock................................................................... 6
Spinco Liabilities.................................................................... 57
Stock Acquisition Date................................................................ 70
Surviving Corporation................................................................. 1
Tax Allocation Agreement.............................................................. 31
Time of Distribution.................................................................. 5
Transaction Value..................................................................... 63
Transfer Taxes........................................................................ 67
Transferred Plans..................................................................... 62
Transition Bonus Program.............................................................. 64
UST................................................................................... 1
UST Board............................................................................. 1
UST Bring Down Certificate............................................................ 43
UST Bylaws............................................................................ 70
UST Certificate of Incorporation...................................................... 70
UST Common Stock...................................................................... 1
UST Option Plans...................................................................... 62
UST Rights Agreement.................................................................. 42
UST-WY................................................................................ 25
UST-WY Retained Liabilities........................................................... 57
USTNY................................................................................. 5
UST's 1993 Annual Report on Form 10-K................................................. 2
UST's Quarterly Reports on Form 10-Q.................................................. 2
</TABLE>
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APPENDIX A
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Dated as of November 18, 1994
Between
THE CHASE MANHATTAN CORPORATION
and
U.S. TRUST CORPORATION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
Parties and Recitals................................................................. A-1
ARTICLE I
The Merger
SECTION 1.1. The Merger........................................................... A-1
SECTION 1.2. Closing.............................................................. A-2
SECTION 1.3. Effective Time....................................................... A-2
SECTION 1.4. Effects of the Merger................................................ A-2
SECTION 1.5. Certificate of Incorporation and By-laws............................. A-2
SECTION 1.6. Directors............................................................ A-2
SECTION 1.7. Officers............................................................. A-2
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.1. Effect on Capital Stock.............................................. A-2
SECTION 2.2. Exchange of Certificates............................................. A-3
ARTICLE III
Representations and Warranties
SECTION 3.1. Representations and Warranties of the Company........................ A-5
SECTION 3.2. Representations and Warranties of CMC................................ A-19
ARTICLE IV
Covenants
SECTION 4.1. Covenants of the Company with Respect to the Retained Business....... A-23
SECTION 4.2. Covenants of the Company............................................. A-26
SECTION 4.3. Covenants of CMC..................................................... A-27
SECTION 4.4. Mutual Covenants..................................................... A-28
ARTICLE V
Additional Agreements
SECTION 5.1. Preparation of Form S-4, Form S-1, Form 10 and the Proxy Statement;
Stockholders Meeting............................................... A-28
SECTION 5.2. Letter of the Company's Accountants.................................. A-29
SECTION 5.3. Letter of CMC's Accountants.......................................... A-29
SECTION 5.4. Access to Information; Confidentiality............................... A-29
SECTION 5.5. Legal Conditions to Distribution and Merger; Legal Compliance........ A-29
SECTION 5.6. Rights Agreement..................................................... A-30
SECTION 5.7. Benefit Plans........................................................ A-31
A-i
<PAGE>
Page
----
SECTION 5.8. Employment Matters................................................... A-31
SECTION 5.9. Employment Agreements................................................ A-33
SECTION 5.10. Fees and Expenses.................................................... A-33
SECTION 5.11. Distribution......................................................... A-33
SECTION 5.12. Public Announcements................................................. A-33
SECTION 5.13. Private Letter Ruling................................................ A-34
SECTION 5.14. Use of Name.......................................................... A-34
SECTION 5.15. UST-CA............................................................... A-34
SECTION 5.16. Affiliates........................................................... A-34
SECTION 5.17. Stock Exchange Listing............................................... A-34
SECTION 5.18. Capital Adequacy..................................................... A-34
ARTICLE VI
Conditions Precedent
SECTION 6.1. Conditions to Each Party's Obligation To Effect the Merger........... A-34
SECTION 6.2. Conditions to Obligations of CMC..................................... A-35
SECTION 6.3. Conditions to Obligation of the Company.............................. A-38
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.1. Termination.......................................................... A-39
SECTION 7.2. Effect of Termination................................................ A-40
SECTION 7.3. Amendment............................................................ A-40
SECTION 7.4. Extension; Waiver.................................................... A-40
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver............ A-40
ARTICLE VIII
General Provisions
SECTION 8.1. Nonsurvival of Representations and Warranties........................ A-41
SECTION 8.2. Notices.............................................................. A-41
SECTION 8.3. Definitions.......................................................... A-41
SECTION 8.4. Interpretation....................................................... A-42
SECTION 8.5. Counterparts......................................................... A-42
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries....................... A-42
SECTION 8.7. Governing Law........................................................ A-42
SECTION 8.8. Assignment........................................................... A-42
SECTION 8.9. Enforcement.......................................................... A-42
</TABLE>
A-ii
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit I -- Form of Distribution Agreement [Attached as Appendix B]
Exhibit II -- Form of Contribution Agreement [Attached as Appendix C]
Exhibit III -- Form of Representation Letters [Omitted]
Exhibit IV -- Form of License Agreement [Omitted]
Exhibit V -- Form of Tax Allocation Agreement [Attached as Appendix E]
Exhibit VI -- Form of Post Closing Covenants Agreement [Attached as Appendix D]
Exhibit VII -- Form of Rule 145 Letter [Omitted]
SCHEDULES [Omitted]
Schedule 3.1(b) -- Subsidiaries
Schedule 3.1(d) -- Consents; Approvals
Schedule 3.1(g) -- Certain Changes or Events
Schedule 3.1(h) -- Litigation; Claims; Proceedings
Schedule 3.1(l) -- Material Contracts; Significant Customers; Customer Agreements; Fee
Schedules
Schedule 3.1(m) -- Changes in Benefit Plans or Collective Bargaining Agreements
Schedule 3.1(n) -- List of Benefit Plans; Compliance
Schedule 3.1(q) -- License Agreements; Intellectual Property
Schedule 3.1(r) -- Tax Matters
Schedule 3.1(t) -- Financial Statements
Schedule 3.1(w) -- Real Property Matters
Schedule 3.1(x) -- Investment Company Customer Accounts
Schedule 3.1(y) -- Investment Company Customers; Changes in Fiscal Year; Shareholder
Approval
Schedule 3.1(a) -- Customer Information
Schedule 3.1(ab) -- Business Information; Uncollected Funds
Schedule 4.1(c) -- Issuance of Securities
Schedule 4.2(c) -- Redemption of Indebtedness of Company
Schedule 5.7 -- Benefit Plans
Schedule 5.8(a) -- Employees of Retained Company
Schedule 5.8(c) -- Certain Severance and Other Benefits
Schedule 5.8(e) -- Transition Bonus Program
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of November 18, 1994 (as amended,
supplemented or otherwise modified from time to time, this "Agreement"),
between THE CHASE MANHATTAN CORPORATION, a Delaware corporation ("CMC"), and
U.S. TRUST CORPORATION, a New York corporation (the "Company").
WHEREAS, the Board of Directors of the Company has approved a plan of
distribution embodied in the form of agreements attached hereto as Exhibit I
(the "Distribution Agreement") and Exhibit II (the "Contribution Agreement"),
each of which will be entered into prior to the Effective Time (as defined in
Section 1.3), subject to the issuance of a private letter ruling from the
Internal Revenue Service (the "Service") as described in Sections 6.2(c) and
6.3(c) hereof in response to a ruling request to be made by the Company (the
"Ruling Request"), pursuant to which (a)(i) all the assets and liabilities of
United States Trust Company of New York, a New York State chartered bank and
trust company and a direct wholly owned subsidiary of the Company ("USTNY"),
other than the assets and liabilities of the Retained Business (as defined in
Section 3.1(l)), will be contributed by USTNY to a wholly owned bank
subsidiary of USTNY to be formed by USTNY (such wholly owned subsidiary of
USTNY is referred to herein as "New Trustco") as provided in the Contribution
Agreement, (ii) the capital stock of New Trustco will be distributed by USTNY
to the Company as provided in the Distribution Agreement and (iii) all the
assets and liabilities of the Company (including the capital stock of its
direct subsidiaries at such time (including New Trustco)), other than the
assets and liabilities of the Retained Business, will be contributed to a
wholly owned subsidiary of the Company to be formed by the Company (such
wholly owned subsidiary of the Company is referred to herein as "New
Holdings") as provided in the Distribution Agreement (the contributions and
distributions referred to in clauses (i) and (ii) above are referred to
collectively herein as the "New Trustco Distribution") and (b) all the shares
of capital stock of New Holdings will be distributed on a pro rata basis to
the Company's stockholders as provided in the Distribution Agreement (together
with the contribution referred to in clause (iii), the "New Holdings
Distribution" and, together with the New Trustco Distribution, the
"Distribution");
WHEREAS, the respective Boards of Directors of CMC and the Company have
determined that, following the Distribution, the merger of the Company with
and into CMC (the "Merger") with CMC as the surviving corporation (the
"Surviving Corporation") would be advantageous and beneficial to their
respective corporations and stockholders;
WHEREAS, for Federal income tax purposes, it is intended that (a) the
Distribution shall qualify as a tax-free distribution within the meaning of
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code") and
(b) the Merger shall qualify as a reorganization under Section 368(a) of the
Code, and this Agreement is intended to be and is adopted as a plan of
reorganization; and
WHEREAS, immediately following the Merger, it is contemplated that CMC
will cause USTNY to merge with, and into, The Chase Manhattan Bank (National
Association), a national banking association ("CMB") and a wholly owned
subsidiary of CMC (the "Bank Merger"), and in the Bank Merger CMB would issue
shares of its capital stock in respect of the capital stock of USTNY having a
fair market value, in aggregate, approximately equal to the fair market value
of the capital stock of USTNY immediately before the Bank Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
The Merger
SECTION 1.1. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the New York Business
Corporation Law (the "NYBCL") and the Delaware General Corporation Law
("DGCL"), the Company shall be merged with and into CMC at the Effective Time.
Following the Merger, the separate corporate existence of the Company shall
cease and CMC shall continue as the Surviving Corporation and shall succeed to
and assume all the rights and obligations of
<PAGE>
the Company in accordance with the NYBCL and the DGCL. Notwithstanding the
foregoing, CMC may elect at any time prior to the Merger, instead of merging
the Company into CMC as provided above, to merge a subsidiary of CMC
(including a subsidiary of CMC to be formed after the date of this Agreement)
into the Company; provided, however, that the Company shall not be deemed to
have breached any of its representations, warranties, covenants or agreements
set forth in this Agreement solely by reason of such election. In such event,
the parties agree to execute an appropriate amendment to this Agreement in
order to reflect the foregoing and, where appropriate, to provide that the
Company shall be the Surviving Corporation.
SECTION 1.2. Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. (subject to satisfaction or waiver of the conditions
set forth in Article VI on the first Business Day (as defined in the
Contribution Agreement) after the end of the first month ending after April
15, 1995, and more than two Business Days after satisfaction of the conditions
set forth in Article VI (the "Closing Date")), at the offices of Cravath,
Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, N.Y. 10019,
unless another date or place is agreed to in writing by the parties hereto.
SECTION 1.3. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the NYBCL and the DGCL, and shall make all other filings or
recordings required under the NYBCL and the DGCL. The Merger shall become
effective immediately following the Distribution, upon the filing of the
Certificate of Merger with the New York Secretary of State and the Delaware
Secretary of State or at such other time as the Company and CMC shall agree
should be specified in the Certificate of Merger (the time the Merger becomes
effective being the "Effective Time").
SECTION 1.4. Effects of the Merger. The Merger shall have the effects
set forth in Section 906 of the NYBCL and Section 259 of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers and franchises
of the Company shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of the Company shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.5. Certificate of Incorporation and By-laws. (a) The
certificate of incorporation of CMC shall be the certificate of incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The by-laws of CMC as in effect at the Effective Time shall be the
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.6. Directors. The directors of CMC at the Effective Time
shall be the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.7. Officers. The officers of CMC at the Effective Time shall
be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.1. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, par value $1.00 per share, of the Company ("Company
Common Stock"):
(a) Cancellation of Treasury Stock and CMC-Owned Stock. Each share
of Company Common Stock that is owned by the Company or by any subsidiary
of the Company (but not any employee stock ownership plan ("ESOP") or
other Benefit Plan (as defined in Section 3.1(n)) of the Company or any
of
A-2
<PAGE>
its subsidiaries) and each share of Company Common Stock that is owned by
CMC or any other subsidiary of CMC, excluding, in each case, any such
share held by the Company, CMC or any of their subsidiaries in a
fiduciary, custodial or similar capacity (together, in each case, with
the associated Right (as defined in Section 3.1(c)) shall automatically
be canceled and retired and shall cease to exist, and no common stock,
par value $2.00 per share, of CMC ("CMC Common Stock") or other
consideration shall be delivered in exchange therefor.
(b) Conversion of Company Common Stock. Subject to Section 2.2(e),
each issued and outstanding share of Company Common Stock other than (i)
shares to be canceled in accordance with Section 2.1(a) and (ii) as set
forth in paragraph (c) below, shares that have not been voted in favor of
the approval of this Agreement and with respect to which appraisal rights
shall have been perfected in accordance with Section 623 of the NYBCL
("Dissenters' Shares"), together with the associated Right, shall be
converted into the right to receive a number of fully paid and
nonassessable shares of CMC Common Stock equal to the Conversion Number
(the "Merger Consideration"). The term "Conversion Number" shall mean a
number, expressed to three decimal places, equal to the fraction of (i)
$363,500,000, divided by (ii) the product of (A) the greater of (1) the
Average Value of CMC Common Stock and (2) $31.00, multiplied by (B) the
number of shares of Company Common Stock outstanding immediately before
the Effective Time. The term "Average Value of CMC Common Stock" shall
mean the 10-day average of the daily average of the high and low prices
for CMC Common Stock reported on the New York Stock Exchange Composite
Transaction Tape, as reprinted in The Wall Street Journal, Eastern
Edition (or, if unavailable, another authoritative source), on each of
the 10 trading days immediately preceding the last Business Day before
the date of the Effective Time. As of the Effective Time, all such shares
of Company Common Stock (and the associated Rights) shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of Company Common Stock (and the associated Rights) shall cease to
have any rights with respect thereto, except the right to receive the
shares of CMC Common Stock and any cash in lieu of fractional shares of
CMC Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.2, without
interest.
(c) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, no Dissenters' Shares shall be converted
as described in Section 2.1(b) but shall become the right to receive such
consideration as may be determined to be due in respect of such
Dissenters' Shares pursuant to the laws of the State of New York;
provided, however, that any Dissenters' Shares (together with the
associated Rights) outstanding immediately prior to the Effective Time
and held by a stockholder who shall, after the Effective Time, lose his
or her right of appraisal, withdraw his or her demand for appraisal as a
matter of right under NYBCL Section 623, or, with the consent of CMC,
otherwise withdraw his or her demand for appraisal, in either case
pursuant to the NYBCL, shall be deemed to be converted as of the
Effective Time into the right to receive the Merger Consideration. The
Company shall give CMC (i) prompt notice of any written demands for
appraisal of shares of Company Common Stock received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior
written consent of CMC, voluntarily make any payment with respect to, or
settle, offer to settle or otherwise negotiate, any such demands.
SECTION 2.2. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, CMC shall deposit
with CMB or such other bank or trust company as may be designated by CMC
(the "Exchange Agent"), for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of CMC
Common Stock (such shares of CMC Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 2.1 in
exchange for outstanding shares of Company Common Stock. CMC shall
provide to the Exchange Agent, on a timely basis, funds necessary to pay
any cash payable in lieu of fractional shares of CMC Common Stock.
A-3
<PAGE>
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Exchange
Agent to mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding
shares of Company Common Stock (the "Certificates") whose shares were
converted into the right to receive shares of CMC Common Stock pursuant
to Section 2.1 (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as CMC may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates
representing shares of CMC Common Stock. Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents
as may be appointed by CMC, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by
the Exchange Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of
whole shares of CMC Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Company Common Stock which is not registered in
the transfer records of the Company, a certificate representing the
proper number of shares of CMC Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise
be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of the issuance
of shares of CMC Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of CMC that
such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing shares of CMC Common Stock
and cash in lieu of any fractional shares of CMC Common Stock as
contemplated by this Section 2.2. No interest will be paid or will accrue
on any cash payable in lieu of any fractional shares of CMC Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to CMC Common Stock with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of CMC Common Stock
represented thereby and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(e) until the
surrender of such Certificate in accordance with this Article II. Subject
to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificate
representing whole shares of CMC Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount
of any cash payable in lieu of a fractional share of CMC Common Stock to
which such holder is entitled pursuant to Section 2.2(e) and the amount
of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of CMC
Common Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such whole shares of CMC Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares
of CMC Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article II and any cash
paid pursuant to Section 2.2(c) or 2.2(e) shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such
Certificates, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of
Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation or the Exchange Agent for any reason, they
shall be canceled and exchanged as provided in this Article II.
A-4
<PAGE>
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of
CMC Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder of CMC.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of
a share of CMC Common Stock (after taking into account all
Certificates registered to such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional
part of a share of CMC Common Stock multiplied by the average of the
high and low prices for CMC Common Stock on the Business Day
immediately before the Closing Date as reported on the New York Stock
Exchange Composite Transaction Tape, as reprinted in The Wall Street
Journal, Eastern Edition.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to CMC, upon demand,
and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to CMC for payment of
their claim for CMC Common Stock, any cash in lieu of fractional shares
of CMC Common Stock and any dividends or distributions with respect to
CMC Common Stock.
(g) No Liability. None of CMC, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of CMC Common
Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
ARTICLE III
Representations and Warranties
SECTION 3.1. Representations and Warranties of the Company. The Company
represents and warrants to CMC as follows:
(a) Organization, Standing and Corporate Power. As used in this
Agreement, (i) any reference to the Company and its subsidiaries means
the Company and each of its subsidiaries, (ii) any reference to the
Retained Company and its subsidiaries means the Company and those of its
direct and indirect subsidiaries included in the Retained Business,
including USTNY, (iii) any reference to the Processing Entities shall
mean the Retained Company and its subsidiaries, but shall not include
that portion of the assets or liabilities and business of the Retained
Company and its subsidiaries that constitutes Acquired Assets, Assumed
Liabilities, Delayed Assets, or Delayed Liabilities (each as defined in
the Contribution Agreement), (iv) any references to subsidiaries of the
Retained Company means the direct and indirect subsidiaries included in
the Retained Business, including USTNY, (v) any reference to New Holdings
and its subsidiaries means New Holdings at the time of the Distribution
and those entities that at the time of Distribution will be direct or
indirect subsidiaries of New Holdings, including New Trustco, and (vi)
references to subsidiaries of New Holdings means those entities that at
or immediately after the Distribution will be direct or indirect
subsidiaries of New Holdings, including New Trustco. As used in this
Agreement, any reference to any event, change or effect having a material
adverse effect on or with respect to an entity (or group of entities
taken as a whole) means such event, change or effect is, or could
reasonably be expected to be, materially adverse to the business,
properties, assets, results of operations or financial condition of such
entity (or, if with respect thereto, of such group of entities taken as a
whole) or on the ability of such entity or group of entities to
consummate the transactions contemplated hereby, including the
Distribution and the Merger. The Company is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the
"Bank Holding Company Act"). USTNY is a wholly owned subsidiary of the
Company and a banking corporation organized under the laws of the State
of New York. Each of the Retained Company and its subsidiaries is a bank
or corporation duly organized,
A-5
<PAGE>
validly existing and in good standing under the laws of the jurisdiction
of its incorporation and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted. The Retained Company and each of its subsidiaries is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a material
adverse effect on Mutual Funds Service Company, a Delaware corporation
("MFSC"), or on the Retained Company and its subsidiaries taken as a
whole. True, accurate and complete copies of the Certificate of
Incorporation and By-laws of the Retained Company and of each of its
subsidiaries, as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to CMC. The Company has made
available to legal counsel for CMC true, accurate and complete copies of
the minute books of the Retained Company and each of its subsidiaries as
maintained by the Company or such subsidiary, as the case may be, as of
the date hereof for the period from January 1, 1990 to and including
September 30, 1994, and the Company has no reason to believe that such
minute books do not contain minutes of all meetings of the boards of
directors and stockholders of the Company or the applicable subsidiary
for such period.
(b) Subsidiaries. Schedule 3.1(b) lists each subsidiary of the
Retained Company. All the outstanding shares of capital stock of each
subsidiary of the Retained Company have been validly issued and are fully
paid and nonassessable and, except for directors' qualifying shares, if
any, or as set forth in Schedule 3.1(b), are owned by the Retained
Company, by another subsidiary of the Retained Company or by the Retained
Company and another such subsidiary, free and clear of all adverse
claims, restrictions on voting or transfer, pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the capital stock of the
subsidiaries of the Retained Company and except for the ownership
interests set forth in Schedule 3.1(b), the Retained Business does not
include any ownership interest, directly or indirectly, in any capital
stock or other ownership interest in any corporation, partnership, joint
venture or other entity. The deposits of each subsidiary of the Retained
Company that accepts deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"), to the extent provided by law.
(c) Capital Structure. As of the Business Day immediately preceding
the date of this Agreement, the authorized capital stock of the Company
consists of 40,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $1.00 per share. At the close of
business on September 30, 1994, (i) 9,386,220 shares of Company Common
Stock and no shares of preferred stock were issued and outstanding, (ii)
2,125,530 shares of Company Common Stock were held by the Company in its
treasury, (iii) 1,790,328 shares of Company Common Stock were reserved
for issuance pursuant to the Benefit Plans of the Company and its
subsidiaries and (iv) 300,000 shares of Series A Participating Cumulative
Preferred Stock were reserved for issuance in connection with the rights
(the "Rights") to purchase shares of Series A Participating Cumulative
Preferred Stock issued pursuant to the Rights Agreement dated as of
January 26, 1988, as amended as of December 12, 1989 (as amended from
time to time, the "Rights Agreement"), between the Company and First
Chicago Trust Company of New York, as Rights Agent (the "Rights Agent").
Except as set forth above, at the close of business on September 30,
1994, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all shares
which may be issued pursuant to the Benefit Plans will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are not any bonds, debentures, notes
or other indebtedness of the Company or any subsidiary of the Retained
Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
stockholders of the Company or such subsidiary, as the case may be, may
vote. Except as set forth above there are not, and except as set forth
above or as contemplated by Section 4.1(e) immediately prior to the
Effective Time there will not be, any securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of
any kind to which the Retained Company or any of its subsidiaries is a
party or by which any of them is bound obligating the Retained Company or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold,
A-6
<PAGE>
additional shares of capital stock or other voting securities of the
Retained Company or of any of its subsidiaries or obligating the Retained
Company or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the close of business on the Business
Day immediately preceding the date of this Agreement, there are not any
outstanding contractual obligations of the Retained Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries. The Company has
delivered to CMC a complete and correct copy of the Rights Agreement as
amended and supplemented to the date of this Agreement.
(d) Authority; Noncontravention. The Company has, and, in the case
of any Documents (as defined in the Contribution Agreement) executed at a
later time, the Company, New Holdings, USTNY and New Trustco will have,
the requisite corporate power and authority (subject to the approvals
described in the next sentence) to enter into this Agreement and the
other Documents and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other
Documents and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
affirmative vote of the holders of Company Common Stock representing
66 2/3% of the shares entitled to vote (such 66 2/3%, the "Requisite
Stockholders"), formal declaration of the Distribution by the Company's
Board of Directors (which will be obtained prior to the Distribution) and
approval of the Distribution by the affirmative vote of the Requisite
Stockholders). This Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding
obligation of CMC, constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
Each of the other Documents has been, or prior to the Merger or the other
transactions contemplated thereby will be, duly executed and delivered by
each of the Company, USTNY, New Trustco and New Holdings, as the case may
be, and constitutes, or upon such execution and delivery will constitute,
a valid and binding obligation of each of the Company, USTNY, New Trustco
and New Holdings, enforceable against it in accordance with its terms.
None of the execution and delivery of this Agreement and the other
Documents or the consummation of the transactions contemplated hereby or
thereby and compliance with the provisions of this Agreement and the
other Documents will conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
material obligation or to loss of a material benefit under, or result in
the creation of any Lien upon any of the material properties or assets of
(i) New Holdings or the Retained Company or any subsidiary of either
under the certificate of incorporation or by-laws or comparable charter
or organizational documents of the Company, New Holdings or any
subsidiary of either, (ii) the Retained Company or any of its
subsidiaries under any Contract (as defined in the Contribution
Agreement) to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or any of their assets
are bound, (iii) subject to the governmental filings and other matters
referred to in the following sentence, the Retained Company or any of its
subsidiaries, under any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Retained Company, or any of its
subsidiaries or their respective properties or assets (other than, in the
case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses or Liens that do not relate to Customer Agreements (as
defined in the Contribution Agreement) or that individually or in the
aggregate would not (A) have a material adverse effect on MFSC or on the
Processing Entities taken as a whole, (B) materially impair the ability
of the Company or any of its subsidiaries to perform their obligations
under this Agreement or any of the other Documents to which the Company
or such subsidiary is a party or (C) prevent the consummation of any of
the transactions contemplated by this Agreement or any of the other
Documents) or (iv) subject to the governmental filings and other matters
referred to in the following sentence, New Holdings and its subsidiaries,
under any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to New Holdings or any of its subsidiaries or their
respective properties or assets or any Contract to which New Holdings or
any of its subsidiaries is a party (other than, in the case of clause
(iv), such conflicts, violations, defaults, rights, losses or liens that
individually or in the aggregate would not (A) have
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material adverse effect on New Holdings and its subsidiaries taken as a
whole, (B) materially impair the ability of New Holdings or any of its
subsidiaries to perform its obligations under any Document to which it or
any such subsidiary is a party or (C) prevent the consummation of any
transaction contemplated by this Agreement). No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Federal, state or local government or any court, administrative agency or
commission or other governmental authority or agency, or self-regulatory
organization, domestic or foreign (a "Governmental Entity"), is required
by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement and any of
the other Documents to which it is a party or the consummation by the
Company or such subsidiary, as the case may be, of the transactions
contemplated hereby or thereby, except for (i) filings pursuant to the
Bank Holding Company Act, (ii) the filing with the Securities and
Exchange Commission ("SEC") of (x) a proxy statement relating to the
approval by the Company's stockholders of this Agreement (as amended or
supplemented from time to time, the "Proxy Statement"), (y) potentially,
a registration statement on Form S-1 relating to the Distribution and (z)
a registration statement on Form 10 (the "Form 10") under, and such
reports under Section 13(a) of, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement, the other Documents and the transactions contemplated hereby
and thereby, (iii) the filing of the Certificate of Merger with the New
York Secretary of State and the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Company or any of its subsidiaries is qualified to do business,
(iv) filings or applications with (A) the New York State Banking
Department in connection with the organization of New Trustco, (B) the
FDIC and the Board of Governors of the Federal Reserve System in
connection with obtaining FDIC insurance for New Trustco and having New
Trustco become a member of the Federal Reserve System and (C) various
State bank regulatory authorities in connection with the Distribution,
(v) such filings as may be required in connection with the Gains Taxes
(as defined in Section 3.2(c)), (vi) such consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth
on Schedule 3.1(d) and (vii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the absence of
which could not reasonably be expected to have a material adverse effect
on MFSC or on the Processing Entities taken as a whole.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed
all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1994 (the "SEC Documents"). As of their
respective dates (as amended), the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933 (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any SEC Document has
been revised or superseded by a later Filed Company SEC Document (as
defined in Section 3.1(g)), none of the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a basis
consistent during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Filed
Company SEC Documents, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of
the Company and its consolidated subsidiaries or in the notes thereto and
which, individually or
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in the aggregate, could reasonably be expected to have a material adverse
effect on MFSC or on the Processing Entities taken as a whole.
(f) Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by the
Company or its representatives for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with
the SEC by CMC in connection with the issuance of shares of CMC Common
Stock in the Merger (the "Form S-4") or in any registration statement on
Form S-1 or any other applicable form to be filed with the SEC by New
Holdings in connection with the distribution of shares of Common Stock,
par value $1.00 per share, of New Holdings ("New Holdings Common Stock")
in the Distribution (the "Form S-1") will, at the time such Registration
Statements become effective under the Securities Act and at the Effective
Time, in the case of the Form S-4, and at the time of the meeting of
stockholders of the Company to be held in connection with the Merger and
the Distribution and at the time of the Distribution, in the case of the
Form S-1, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading and (ii) the Proxy Statement will, at the
date mailed to the Company's stockholders and at the time of the meeting
of stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules
and regulations thereunder, and the Form S-1 will comply as to form in
all material respects with the provisions of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations thereunder,
except that no representation is made by the Company with respect to
statements made therein based on information supplied by CMC for
inclusion in the Proxy Statement or the Form S-1, respectively, or with
respect to information concerning CMC or any of its Subsidiaries
incorporated by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents filed and publicly available prior to the date
of this Agreement (the "Filed Company SEC Documents") or as set forth in
Schedule 3.1(g) or, as of the Closing Date, as disclosed in the Company
SEC Documents filed and publicly available before the Closing Date or in
Schedule 3.1(g) or in the Company Bring Down Certificate (as defined in
Section 6.2(a)), since the date of the most recent audited financial
statements included in the Filed Company SEC Documents, the Processing
Entities have conducted their business only in the ordinary course,
consistent with past practice, and there has not been (i) any material
adverse change in MFSC or in the Processing Entities taken as a whole or
any event that could reasonably be expected to have a material adverse
effect on MFSC or on the Processing Entities taken as a whole, (ii) any
split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
(other than phantom share units issued under any Benefit Plan as defined
in Section 3.1(n)), (iii) (x) any grant by the Company or any of its
subsidiaries of any general increase in the compensation payable to
employees who are listed in Schedule 5.8(a) who are Prospective Retained
Employees (as defined in Section 5.8(a)), other than as provided in
Section 5.8(e) of this Agreement, normal increases in base salary, and
annual bonuses consistent with past practices made in the ordinary course
of business and the payment of bonuses for the period from January 1,
1995 through the Closing Date under any amendment made after the date of
this Agreement to the 1990 Annual Incentive Plan or to the Incentive
Award Plan maintained by USTNY, or as was required under employment
agreements in effect as of the date of the most recent audited financial
statements included in the Filed Company SEC Documents or (y) any entry
by any of the Processing Entities into any employment, severance or
termination agreement with any executive officer who is a Prospective
Retained Employee, other than as provided in Section 5.8(c), (iv) any
damage, destruction or loss, whether or not covered by insurance, that
has had or is likely to have a material adverse effect on MFSC or on the
Processing Entities taken as a whole, (v) any change in accounting
methods, principles or practices by the Company or any of its
subsidiaries, except insofar as may have been required (in the opinion of
the Company's independent accountants) by a change in generally accepted
accounting principles, (vi) any material decrease in the
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assets in the custody of or cash deposits held by the Processing Entities
as a result of terminations of Customer (as defined in the Contribution
Agreement) accounts or withdrawals of assets from Customer accounts,
other than such decreases as shall have occurred in the ordinary course
or seasonal fluctuations on a basis consistent with ordinary and general
economic conditions, (vii) any material amendment, modification, or
termination of any Contract, which had it not been so amended, modified
or terminated, would be a Material Contract (as defined in Section
3.1(l)), (viii) any acquisition of a material asset whose value upon
liquidation would be materially less than its book value, except for such
acquisitions of assets in the ordinary course of business consistent with
past practice as would not, individually or in the aggregate, have a
material adverse effect on MFSC or on the Processing Entities taken as a
whole, (ix) any sale or disposition of any material assets or properties
by the Processing Entities, except in the ordinary course of business,
consistent with past practice, (x) any waiver of any material rights of
value by any of the Processing Entities, without adequate consideration,
except for such waivers in the ordinary course of business consistent
with past practice which would not, individually or in the aggregate,
have a material adverse effect on MFSC or on the Processing Entities
taken as a whole or (xi) any entry into any agreement, arrangement or
commitment to take any of the actions set forth in this Section 3.1(g).
(h) Litigation. On the date of this Agreement, except as set forth
in Schedule 3.1(h), or as disclosed in the Filed Company SEC Documents,
and at the Closing Date, except for the foregoing and claims,
investigations, suits, actions or proceedings arising, or to the
knowledge of the Company first threatened, between the date hereof and
the Closing Date and disclosed in the Company Bring Down Certificate (as
defined in Section 6.2(a)), there is no claim, investigation, suit,
action or proceeding pending or, to the knowledge of the Company,
threatened, against any of the Company or its subsidiaries before or by
any Governmental Entity or arbitrator that, individually or in the
aggregate, could reasonably be expected to (i) have a material adverse
effect on MFSC or on the Processing Entities taken as a whole, (ii)
materially impair the ability of the Retained Company or New Holdings or
any subsidiary of either to perform any obligation under this Agreement
or any of the other Documents, (iii) prevent, delay, alter or require the
payment of damages in excess of $100,000 upon the consummation of any or
all of the transactions contemplated hereby or thereby or (iv) result in
liability of any or all of the Processing Entities in excess of, with
respect to any individual claim, investigation, suit, action or
proceeding, $100,000 or, with respect to all such claims, investigations,
suits, actions or proceedings, $500,000, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against any of the Processing Entities having, or
which could reasonably be expected to have, any such effect. Except as
set forth in Schedule 3.1(h), there are no unpaid judgments, injunctions,
orders, arbitration decisions or awards, or other judicial or
administrative mandates outstanding against any of the Processing
Entities. Schedule 3.1(h) also sets forth a brief summary of all claims,
investigations, suits, actions, or proceedings against any of the
Processing Entities that have been settled or otherwise determined at any
time since January 1, 1994 resulting in liability of the Processing
Entities in excess of, with respect to any individual claim,
investigation, suit, action or proceeding, $100,000 or, with respect to
all such claims, investigations, suits, actions or proceedings, $500,000.
(i) Agreements with Regulators. Neither the Company nor any of its
subsidiaries is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order, decree or directive by, or is
a recipient of any extraordinary supervisory letter from, or since
January 1, 1993 has been required to adopt any board resolution by, any
Federal or state Governmental Entity charged with the supervision or
regulation of banks or bank holding companies, or engaged in the
insurance of bank deposits (the "Bank Regulators") or charged with the
supervision or regulation of transfer agents and securities custodians
(together with the Bank Regulators, the "Regulators"), nor has the
Company or any of its subsidiaries been advised by any Regulator that it
is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar submission or requiring (or is considering
the appropriateness of requiring) the adoption of any such board
resolution.
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(j) Compliance with Applicable Laws. On the date of this Agreement,
except as set forth in Schedule 3.1(j), and at the Closing Date, except
for the foregoing and as set forth in the Company Bring Down Certificate,
the Processing Entities hold all permits, licenses, variances,
exemptions, orders and approvals of, and have made all filings,
applications and registrations with, all Governmental Entities which
individually or in the aggregate are material to the operation of the
business of MFSC or of the Processing Entities taken as a whole (the
"Retained Company Permits"). All Retained Company Permits are in full
force and effect in all material respects. The Retained Company and its
subsidiaries are in compliance with the terms of the Retained Company
Permits, except where the failure so to comply would not have a material
adverse effect on MFSC or on the Processing Entities taken as a whole.
Except as disclosed in the Filed Company SEC Documents prior to the date
of this Agreement, the business of the Processing Entities is not being
conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations that individually or
in the aggregate do not, and could not reasonably be expected to, have a
material adverse effect on MFSC or on the Processing Entities taken as a
whole. Except for routine examinations by Bank Regulators, as of the date
of this Agreement, to the knowledge of the Company, no investigation by
any Governmental Entity with respect to the Retained Company or any of
its subsidiaries is pending or threatened, other than, in each case,
those the outcome of which could not reasonably be expected to have a
material adverse effect on MFSC or on the Processing Entities taken as a
whole.
(k) Brokers or Finders. No broker, investment banker, financial
advisor or other person, other than CS First Boston Corporation and S. V.
Murphy & Co., Inc., the fees and expenses of which will be paid by the
Company, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement and the other Documents based upon
arrangements made by or on behalf of the Company.
(l) Retained Business.
(i) The "Retained Business" means the business conducted with
certain assets of the Company and USTNY, MFSC and U.S. Trust Company
of Wyoming, a Wyoming corporation ("UST-WY"), and the liabilities
associated with such assets, in each case other than the Acquired
Assets, the Assumed Liabilities, the Delayed Assets and the Delayed
Liabilities (each as defined in the Contribution Agreement) and the
Acquired Assets and Assumed Liabilities (each as defined in the
Distribution Agreement) and consists of (w) the Related Back Office,
(x) the UIT Business (as defined in the Contribution Agreement), (y)
the MFS Business (as defined in the Contribution Agreement) and (z)
the IAS Business (as defined in the Contribution Agreement, and
subject to the exceptions set forth in such definition).
(ii) At the Effective Time, except for the Acquired Assets, the
Delayed Assets and except as contemplated by the Distribution
Agreement, the Contribution Agreement, the Services Agreement (as
defined in the Contribution Agreement), and the License Agreement (as
defined in the Contribution Agreement), neither New Holdings nor any
of its subsidiaries will use in the conduct of its business or own or
have rights to use any assets or property, whether tangible,
intangible or mixed, which are also used in the conduct of the
business of the Retained Business. At the Effective Time neither New
Holdings nor any of its subsidiaries will be a party to any material
agreement, arrangement or understanding with the Retained Company or
any of its subsidiaries (other than the Documents and agreements
specifically contemplated thereby), including, without limitation, any
Material Contract providing for the furnishing of services or rental
of real or personal property to or from, or otherwise relating to the
business or operations of, any of the Retained Company or any of its
subsidiaries or pursuant to which the Retained Company or any of its
subsidiaries may have any material obligation or liability. After the
Effective Time, none of the Retained Company or any of its
subsidiaries will have any liability whatsoever, direct or indirect,
contingent or otherwise, in any way relating to the business,
operations, indebtedness, assets or liabilities of New Holdings or any
of its subsidiaries, except as contemplated by the other Documents.
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(iii) Except as set forth in Schedule 3.1(l) or, at the Closing
Date, as disclosed in the Company Bring Down Certificate, (w) all
Material Contracts (as defined below), together with all modifications
and amendments thereto, are valid and binding obligations of the
parties thereto and in full force and effect, (x) none of the Material
Contracts contains a provision described in clause (E), (M) or (O) of
the definition of the term "Material Contracts", (y) neither the
Retained Company nor any of its subsidiaries is in breach or default
under any Customer Agreement, except for such breaches or defaults in
the ordinary course of business that do not, and will not with the
passage of time, individually or in the aggregate, have a material
adverse effect on MFSC or on the Processing Entities taken as a whole,
or in any material respect under any other Material Contract and, to
the knowledge of the Company no other party is in material default
thereunder and (z) neither the Retained Company nor any of its
subsidiaries has received any notice of the intention of any
significant customer listed in Schedule 3.1(l) (each such listed
customer, a "Significant Customer") to terminate, or not to renew, any
Customer Agreement or to materially reduce the required level of
services under any such Customer Agreement. Except as set forth in
Schedule 3.1(l) and except for the Customer Agreements and all
Computer Leases (as defined in the Contribution Agreement) or
agreements relating solely to Acquired Assets, neither the Retained
Company nor any subsidiary of the Retained Company is party to any
Contract that is a Material Contract. Except as set forth in Schedule
3.1(l), or, at the Closing Date, as disclosed in the Company Bring
Down Certificate, none of the Customer Agreements with any Significant
Customer, or any other arrangements or understandings relating to the
Company or any of its subsidiaries rendering of Processing Services to
any Significant Customer, contains any undertaking by the Company or
any of its subsidiaries to cap fees at other than the normal level
that is provided for in the relevant Customer Agreement or reimburse
or waive any or all fees thereunder. True and complete copies of each
Material Contract, including standard terms and a current fee schedule
for each Customer Agreement, have been made available to the CMC.
Schedule 3.1(l) also sets forth the fee schedules in effect at
December 31, 1993 (with respect to MFSC only) and September 30, 1994
and any fee adjustments implemented at any time since January 1, 1994
or presently proposed to be implemented, with respect to the
Significant Customers. Except as set forth on Schedule 3.1(l), as of
the date of this Agreement, and, as of the Closing Date, as disclosed
in the Company Bring Down Certificate, all understandings with
Significant Customers to provide Processing Services for consideration
in excess of $100,000 per annum are incorporated into duly executed,
and to the best of the Company's knowledge, valid and enforceable
written contracts with the Processing Entities.
As used herein, the term "Material Contract", shall mean any
Contract to which any of the Processing Entities is a party or by which
any of the Processing Entities or any of the assets of any of the
Processing Entities is bound, that is any of the following: (A) a
Contract of employment or a consulting agreement with any person listed
in Schedule 5.8(a) that is other than "at-will" and contains any term
requiring any termination benefits other than under the Company's
generally applicable severance plan; (B) a Contract with any labor union
or association; (C) a Contract with any affiliate of the Company; (D) a
Contract not made in the ordinary course of business; (E) a Contract
containing a covenant not to compete; (F) a loan or similar agreement
relating to the borrowing of money or any guarantee of indebtedness of
any other person in excess of $100,000; (G) any lease or sublease
relating to real property; (H) any Contract not fully performed for the
purchase of any commodity, material, services or equipment, including
without limitation fixed assets, for a price in excess of $100,000 in the
aggregate over the life of the Contract; (I) any license agreement (as
licensor or licensee) providing for future payments in excess of
$100,000; (J) any other Contract which creates future payment obligations
in excess of $100,000; (K) any Customer Agreement; (L) any Contract with
a subcustodian, depositary, or clearing agency; (M) any Contract that
obligates the Retained Company or any of its subsidiaries to obtain all
or a substantial portion of its requirements of any goods or services
from, or supply all or a substantial portion of the requirements for any
goods or services of, any other person; (N) any Contract that is material
to the conduct of the Retained Business; (O) other than the Broadway
Lease (as defined in the Contribution Agreement), the Tremont Lease (as
defined in the Distribution Agreement) or any
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Computer Lease, a put or option Contract that would obligate the Retained
Company or any of its subsidiaries to sell any asset other than an
Acquired Asset or Delayed Asset, to sell any Retained Asset that is
reasonably necessary to the conduct of the Processing Business and
Related Back Office, or to sell any material asset at a bargain price or
to buy any material asset at a material premium and (P) other than the
Broadway Lease, the Tremont Lease or any Computer Lease, any Contract
that expressly limits the right of the Retained Company or any of its
subsidiaries to terminate the Contract upon less than six months' notice
or expressly requires it to pay liquidated damages of more than $100,000
upon early termination.
(m) Absence of Changes in Benefit Plans. Except as set forth in
Schedule 3.1(m) or as disclosed in the Filed Company SEC Documents, since
the date of the most recent audited financial statements included in the
Filed Company SEC Document there has not been any adoption or amendment
in any material respect by the Company or any of its subsidiaries of any
collective bargaining agreement or any Benefit Plan other than any
adoption or amendment of a Benefit Plan that is not prohibited under
Section 4.1(h).
(n) Benefit Plans, Employment and Labor Relations.
(i) Schedule 3.1(n) contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (sometimes referred
to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) and all other plans, agreements,
policies or arrangements relating to stock options, stock purchases,
compensation, deferred compensation, severance, and other employee
benefits, in each case maintained or contributed to as of the date of
this Agreement by the Company or any of its subsidiaries or any other
person or entity that, together with the Company, is treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code (a
"Commonly Controlled Entity") for the benefit of any current or former
employees, officers or directors of the Company or any Commonly
Controlled Entity (collectively, the "Benefit Plans"). The Company has
made available to CMC true, complete and correct copies of (w) each
Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (x) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each Benefit
Plan (if any such report was required), (y) the most recent summary
plan description for each Benefit Plan for which such summary plan
description is required and (z) each trust agreement or group annuity
contract relating to any Benefit Plan.
(ii) Each Benefit Plan has been administered in all material
respects in accordance with its terms and in compliance in all
material respects with the applicable provisions of ERISA and the
Code.
(iii) Neither the Company nor any Commonly Controlled Entity has
incurred a "complete withdrawal" or a "partial withdrawal" (as such
terms are defined in Section 4203 and Section 4205, respectively, of
ERISA) with respect to any "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA) that has led to or could lead to the
imposition of a material withdrawal liability under Section 4201 of
ERISA that remains unpaid as of the date hereof; and neither the
Company nor any Commonly Controlled Entity maintains or contributes to
or is obligated to maintain or contribute to any such multiemployer
plan.
(iv) Neither the Company nor any Commonly Controlled Entity has
incurred any material liability, and no event has occurred or set of
circumstances exists that could reasonably result in any material
liability, under Title I or Title IV of ERISA (other than to a Pension
Plan for contributions not yet due or to the Pension Benefit Guaranty
Corporation for payment of premiums not yet due) or under Section 412
or Chapter 43 of the Code that has not been fully paid as of the date
hereof.
(v) As of the most recent valuation date for any Pension Plan
subject to Section 412 of the Code or Title IV of ERISA, other than
any "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA, the fair market value of the assets of such Pension Plan exceed
the present
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value (determined on the basis of reasonable assumptions employed by
the independent actuary for such Pension Plan) of the "benefit
liabilities" (within the meaning of Section 4001(a)(16) of ERISA) of
such Pension Plan.
(vi) The Company has heretofore provided CMC with access to
complete and correct copies of each contract of employment or
consulting agreement with any person listed in Schedule 5.8(a).
Neither the Company nor any of its subsidiaries is a party to, or is
bound by, any Contract with any labor union or association, including,
without limitation, any collective bargaining, labor or similar
agreement. The Company and each of its subsidiaries is in compliance
with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and
are not engaged in any unfair labor practices except where the failure
to so comply or the result of such unfair labor practice, as the case
may be, would not have a material adverse effect on the Retained
Company and its subsidiaries. Except as set forth in Schedule 3.1(n):
(A) there is no unfair labor practice charge or complaint
against any of the Company and its subsidiaries pending, or to the
knowledge of the Company, threatened before the National Labor
Relations Board;
(B) there has not occurred nor, to the knowledge of the
Company, has there been threatened, a labor strike, request for
representation, work stoppage or lockout;
(C) there is no representation claim or petition pending
before the National Labor Relations Board respecting the employees
of any of the Company and its subsidiaries;
(D) no grievance or any arbitration proceeding arising out of
any collective bargaining agreement to which any of the Company and
its subsidiaries is a party is pending;
(E) no charges with respect to or relating to any of the
Company and its subsidiaries are pending before the Equal
Employment Opportunity Commission or any state, local or foreign
agency responsible for the prevention of unlawful employment
practices;
(F) no claims relating to employment or loss of employment
with any of the Company and its subsidiaries are pending in any
federal, state or local court or in any other adjudicatory body
and, to the knowledge of Company, no such claims against any of the
Company and its subsidiaries have been threatened; and
(G) none of the Company and its subsidiaries has received
notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment regulations
to conduct an investigation of or relating to any of the Company
and its subsidiaries, and no such investigation is in progress.
(o) State Takeover Statutes. The Board of Directors of the Company
has approved the Merger, the Distribution, this Agreement and the other
Documents and the transactions contemplated hereby and thereby and such
approval is sufficient to render inapplicable to the Merger, the
Distribution, this Agreement and the other Documents and the transactions
contemplated by this Agreement and such other Documents the provisions of
Section 912 of the NYBCL. To the best of the Company's knowledge, no
other state takeover statute or similar statute or regulation (other than
state banking or financial institution laws and regulations) applies or
purports to apply to the Merger, the Distribution, this Agreement, and
the other Documents or any of the transactions contemplated by this
Agreement or such other Documents.
(p) Rights Agreement. The Company has taken all necessary action to
(i) render the Rights inapplicable to the Merger, the Distribution and
the other transactions contemplated by this Agreement and the other
Documents and (ii) ensure that (A) neither CMC nor any of its affiliates
is an "Acquiring Person" (as defined in the Rights Agreement) and (B)
neither a Distribution Date nor a Triggering Event (each as defined in
the Rights Agreement) will occur by reason of the announcement or
consummation of the Merger or the consummation of any of the other
transactions contemplated by this Agreement and the other Documents.
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(q) Intellectual Property. Except for third-party PC software
installed on servers, workstations and personal computers, Schedule
3.1(q) sets forth a list of all licenses held by the Processing Entities
for all application and system software utilized in the conduct of the
Retained Business. Except as set forth in Schedule 3.1(q), and subject to
obtaining any required third party consents, the Retained Company and its
subsidiaries own or have, or on the delivery of the License Agreement
will have, rights to use all systems and applications software reasonably
necessary to the conduct of the Processing Business and Related Back
Office in the manner currently being conducted and such use does not, and
will not immediately after the Effective Time, conflict with the rights
of others, except for such conflicts that individually or in the
aggregate have not had and are not reasonably likely to have a material
adverse effect on MFSC or on the Processing Entities taken as a whole.
(r) Taxes. Each of the Company and each of its subsidiaries has
filed all Federal income tax returns and all other material returns and
reports required to be filed by it and has paid (or the Company has paid
on its behalf) all material taxes required to be paid by it, and the most
recent financial statements contained in the Filed Company SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the
date of such financial statements. Except as disclosed in Schedule
3.1(r), no deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries, and no requests
for waivers of the time to assess any such taxes are pending. The Federal
income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the
Service for all years through 1987. As used in this Agreement, "taxes"
shall include all Federal, state, local and foreign income, property,
sales, excise and other taxes, tariffs or governmental charges of any
nature whatsoever.
(s) Opinion of Financial Advisor. The Company has received the
opinion of CS First Boston Corporation, dated November 17, 1994, to the
effect that, as of such date, the consideration to be received in the
Merger by the Company's stockholders is fair to the Company's
stockholders from a financial point of view, a signed copy of which
opinion has been delivered to CMC.
(t) September Balance Sheets. Attached as Exhibit 3.1(t) hereto are
the unaudited balance sheets of the Processing Entities on a combined
basis and of MFSC on an individual basis as of September 30, 1994 (the
"September Balance Sheets"). Such balance sheets have been prepared in
accordance with the Accounting Principles (as set forth in Schedule 1.1A
of the Contribution Agreement) (except as may be indicated in the notes
thereto) and fairly present the combined assets and liabilities of the
Processing Entities and of MFSC as of the date thereof. Except as set
forth in the September Balance Sheets, none of the Processing Entities
had as of the date thereof any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be set forth on a combined
balance sheet of the Processing Entities or a balance sheet of MFSC or in
the notes thereto which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on MFSC or on
the Processing Entities taken as a whole.
(u) Books of Account. The books of account of the Processing
Entities are maintained in all material respects in compliance with all
applicable legal and accounting requirements.
(v) Reports. Since December 31, 1993, the Company and its
subsidiaries have filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto,
that were required to be filed with any applicable Federal, state, local
or foreign authorities, except where the failure to so file would not,
individually or in the aggregate, have a material adverse effect on the
financial condition, business or results of operations of MFSC or of the
Processing Entities taken as a whole (all such reports and statements are
collectively referred to herein as the "Company Reports"). As of their
respective dates, the Company Reports complied with the statutes, rules,
regulations and orders enforced or promulgated by the regulatory
authority with which they were filed except where the failure to comply
with such statutes, rules, regulations and orders would not, individually
or in the aggregate, have a material adverse effect on the financial
condition, business or results of operations of MFSC or of the Processing
Entities taken as whole.
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(w) Properties.
(i) Except (A) as may be reflected in the September Balance
Sheets, (B) for any lien for current taxes not yet delinquent, (C) for
pledges to secure deposits of states or municipalities and (D) for
such other Liens as do not materially affect the value of the property
reflected in the September Balance Sheets or acquired since the date
of the September Balance Sheets and which do not, individually or in
the aggregate, materially interfere with or impair the present and
continued use of such property, the Processing Entities have good
title, free and clear of any Liens, to all of the property reflected
in the September Balance Sheets, and all property acquired since the
date of the September Balance Sheets, except such property as has been
disposed of (or, in the case of receivables, collected or paid) in the
ordinary course of business consistent with past practice. As of
September 30, 1994, all the material tangible personal property owned
or leased by the Processing Entities was in good working condition
(normal wear and tear excepted) and was suitable in all material
respects for the purposes for which it was being used. Subject to any
necessary consents required with respect to any Data Processing
Licenses, and to appropriate arrangements with affiliates of New
Trustco for the provision of certain services in the states of
California and Oregon, and except for the Acquired Assets specifically
identified in Section 2.2(a) of the Contribution Agreement and the
Acquired Third Party Service Agreements (as defined in the
Contribution Agreement), the Retained Assets and the rights granted
under the License Agreement are adequate to enable the Processing
Entities to conduct the Retained Business immediately following the
Effective Time in substantially the same manner as conducted by the
Company and its subsidiaries immediately prior to the Effective Time
(without taking into account regulatory issues and contractual
obligations to which CMB, or its properties, are subject).
(ii) Schedule 3.1(w) attached hereto sets forth a list as of the
date hereof of all leases of real property, identifying separately
each lease, to which any of the Processing Entities are a party or by
which any of the Processing Entities are bound (collectively, the
"Leases"). The Leases are in full force and effect and neither the
Company nor any subsidiary has received a notice of default or
termination with respect to such Leases. On the date hereof, except as
set forth on Schedule 3.1(w) or, on the Closing Date, except as set
forth in such Schedule or as disclosed in the Company Bring Down
Certificates, there has not occurred any event that constitutes, or
with the giving of notice or the passage of time or both, would
constitute a breach by the Company or a subsidiary of the Company of,
or default by the Company or a subsidiary of the Company in, the
performance of any covenant, agreement or condition contained in any
Lease, which breach or default would, individually or in the
aggregate, have a material adverse effect on MFSC or on the Processing
Entities taken as a whole. On the date hereof, except as set forth in
Schedule 3.1(w), or, on the Closing Date except as set forth in such
Schedule or, as disclosed in the Company Bring Down Certificate, the
Company has no knowledge of any obligation on its part, or the part of
its subsidiaries, to make material improvements or material
extraordinary payments with respect to such leased premises. The
Leases constitute all the real property reasonably necessary for the
conduct of the Retained Business in the manner heretofore conducted.
None of the Processing Entities owns any real property. All of the
real properties that are subject to the Leases and all of the fixtures
and other improvements thereon are in good operating condition and
have been adequately maintained and neither the Company nor any of its
subsidiaries has received any notice within the last two years that it
is in material violation of any applicable building code, zoning
ordinance or other law or regulation, other than notices as to
violations which have been remedied.
(x) Absence of Certain Conditions. On the date hereof, except as
set forth on Schedule 3.1(x) or, as of the Closing Date, except as set
forth in such Schedule or as disclosed in the Company Bring Down
Certificate, there exists no material "out of balance" or similar
condition with respect to any Investment Company Customer (as defined in
Section 3.1(y)) to which MFSC furnishes Administration Services (as
defined in the Post Closing Covenants Agreement). For purposes of this
clause (x), material shall mean a condition that would cause a net asset
value change in any unit of at least 1/2 of 1% of net asset value.
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(y) Investment Companies.
(i) As used in this Agreement, the term "Investment Company"
shall have the meaning provided in the Investment Company Act of 1940,
as amended (the "Investment Company Act"), provided that for purposes
of this Agreement the term Investment Company shall include any person
that would be an investment company, as defined in that Act, but for
the exemption contained in Section 3(c)(1), the final clause of
Section 3(c)(3) or Section 3(c)(11) of the Investment Company Act.
Schedule 3.1(y) is a list, by sponsor, of each Customer which is an
Investment Company ("Investment Company Customer") showing, as of
September 30, 1994, the type, the net asset value, and the number of
stockholders and other holders of beneficial interests of such
Investment Company.
(ii) Except as set forth on Schedule 3.1(y) hereto, no Investment
Company Customer for which any of the Processing Entities has, or has
had, responsibility for preparing or for filing any Federal, State or
local tax return has, since the Processing Entities commenced
preparing or filing such Customers' returns or, to the Company's best
knowledge, since January 1, 1985, changed its fiscal year. In the case
of each U.S. Investment Company Customer identified in Schedule 3.1(y)
that has elected to be treated as a "regulated investment company"
under Subchapter M of Chapter 1 of Subtitle A of the Code and with
respect to which any of the Processing Entities has, or has had,
responsibility for preparing or filing Federal tax returns, to the
best knowledge of the Company, such Investment Company Customer has,
at all times since the end of the most recent taxable year of such
Investment Company Customer that has been closed and for which the
statute of limitations for assessments has expired, qualified as a
"regulated investment company" and each such Investment Company
Customer has complied with all applicable provisions of law necessary
to preserve and retain such Investment Company Customer's election and
status as a regulated investment company or has determined not to
retain such status.
(iii) Since January 1, 1990, none of the information or data
furnished by the Company or any of its subsidiaries for inclusion in
any registration statement filed under the Securities Act with respect
to the shares of any U.S. Investment Company Customer contained, as of
the effective date of the registration statement, any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein in order to make the statements therein not misleading.
None of the information furnished by the Company for inclusion in any
annual report, semi-annual report, transition reports, prospectus,
proxy statements or sales literature of any Investment Company
Customer, or any amendment or supplement, as of the respective dates
of the report or other document, included an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(iv) Except as set forth in Schedule 3.1(y), none of the
transactions contemplated by this Agreement or the other Documents
will require the approval of the stockholders, holders of beneficial
interests or other holders of the equity of any Investment Company
Customer or the boards of directors or the trustees of such Investment
Company Customers as a condition to the continued validity of any
underlying Customer Agreement.
(v) Insofar as any of the Processing Entities has legal liability
under an administration, custody, or similar agreement, or otherwise,
for compliance with the matters covered by the following, since
January 1, 1990: (A) each of the Processing Entities has or will have
on or prior to the Effective Time, properly prepared in all material
respects, executed and timely filed, all federal, state and local tax
returns for income, franchise, sales, withholding, property, excise
and other taxes applicable to any Investment Company Customer having a
due date (taking into account any extension granted prior to the
Effective Time) on or prior to the Effective Time, and has or will
have paid all taxes, assessments, fees and other governmental charges
shown on said returns or otherwise required to be paid by any
Investment Company Customer as of or prior to the Effective Time; (B)
all of such returns are complete and accurate in all material respects
and have been prepared
A-17
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substantially in accordance with all applicable legal requirements;
(C) no tax liabilities, disallowances or assessments relating to any
Investment Company Customer have been assessed or proposed or will
have been assessed or proposed as of the Effective Time and none of
the Retained Company or any of its subsidiaries is aware of any basis
for any such assessment; (D) except as set forth in Schedule 3.1(y),
the Federal income tax returns for each Investment Company Customer
for prior periods have not been audited by the Service; (E) any
amounts credited to the reserve account of an Investment Company
Customer as a provision for taxes is adequate for the period to which
it pertains; (F) without limiting the foregoing, each Unit Trust (as
defined in the Contribution Agreement) which does not qualify as a
grantor trust under Subpart E of Subchapter J of the Code, qualifies
as a "regulated investment company" under Section 851 of the Code, and
has so qualified during its entire existence and (G) none of the Unit
Trusts is or has been liable for tax under Section 4982 of the Code.
(vi) Each of the representations and warranties set forth in this
Section 3.1(y), other than those set forth in clauses (i) or (iv), is
made only insofar as the failure of such representation and warranty
to be true with respect to any matter or series of related matters
would have a material adverse effect on MFSC or on the Processing
Entities taken as a whole.
(z) Customers. Schedule 3.1(z) lists with respect to each line of
business (i.e., IAS Business, MFS Business and UIT Business) each current
Customer (or major sponsor in the case of Unit Trusts) and sets forth
with respect to each Customer (or major sponsor in the case of Unit
Trusts or sponsor in the case of any mutual fund complex in the case of
MFSC) as of September 30, 1994:
(i) the approximate aggregate market value (or par value in the
case of Unit Trusts) of net assets held in "Custody" or "Assets
Administered" with the asset values for each of the three categories
separately identified;
(ii) for each MFS Customer, the aggregate market value of net
assets subject to (A) fund administration, (B) fund accounting
services and (C) transfer agency services;
(iii) for each MFS Customer, the fees (segmented by "fund
accounting fees," "fund administration fees," "transfer agency fees"
and "custody fees") earned by the Company for the three quarters ended
September 30, 1994;
(iv) for each IAS Customer, "Fiduciary or other fees" earned by
the Company for the three quarters ended September 30, 1994;
(v) for each UIT Customer, "UIT trustee fees" earned by the
Company for the three quarters ended September 30, 1994; and
(vi) any revenues not specifically allocated to individual
Customers or sponsors separately segmented for each of the IAS
Business, MFS Business and UIT Business.
(aa) Unit Investment Trusts. USTNY is qualified to act as a trustee
of a registered unit investment trust in accordance with the requirements
of Section 26(a)(1) of the Investment Company Act and each trust
agreement relating to a series of a unit investment trust and the
standard terms and conditions incorporated therein. Each of USTNY and
MFSC is a transfer agent registered under Section 17A of the Exchange
Act. USTNY is, and immediately prior to the Effective Time will be, the
duly appointed and acting trustee of each of the Unit Trusts. Except as
set forth on Schedule 3.1(z), as of September 30, 1994, (i) the
"calculated lag" for each Customer varied by no more than $0.05 per
$1,000 unit from the "trading lag", (ii) there was no material difference
(defined as 1/2 of 1% of the net asset value) between the net asset value
in the most recent audited financial statements for each trust and the
comparable net asset value used for secondary market trading and (iii)
there is no misstatement of a Customer account (including an Investment
Company account, asset, liability or expense (including trust related
expenses)) that exceeds generally accepted standards of materiality
applicable to the Customer.
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(ab) Standards.
(i) Each of the Retained Company and its subsidiaries maintains
records that in all material respects reflect its and, in cases in
which it holds Customer assets, its Customers' transactions,
dispositions and acquisitions of assets, and receipt of funds and
maintains a system of internal accounting controls, policies and
procedures sufficient to make it reasonable to expect that (A) such
transactions are executed in accordance with its management's general
or specific authorization, (B) such transactions are recorded in
conformity with any applicable accounting principles and in such a
manner as to permit preparation of financial statements in accordance
with any applicable accounting principles and any other criteria
applicable to such statements and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with
management's general or specific authorization, (D) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences and (E) records of such transactions are retained,
protected and duplicated in accordance with prudent banking and
fiduciary practices and applicable regulatory requirements.
(ii) The Company has made available to CMC true, accurate and
complete copies of all internal and external audit control
recommendations and exception items, and deficiency letters from
Governmental Entities, concerning all Customers at any time since
January 1, 1992, and of the response of the Company and its
subsidiaries thereto. Except as set forth on Schedule 3.1(ab), the
Company and its subsidiaries have, to the extent and at or before the
times set forth in such responses, materially complied with or
otherwise substantively addressed such recommendations, exceptions and
deficiency items.
(iii) The data and transaction processing services of the
Retained Company are of the quality generally maintained as of the
date of this Agreement by securities processing businesses similarly
situated and are generally adequate for the performance of the
Processing Business and Related Back Office. The Company has delivered
to CMC true, accurate and complete copies of any management reports
and any report cards prepared by the Company or any of its
subsidiaries or by any Customer in connection with the 15 largest (by
aggregate revenues billed) Customers of the Retained Business at any
time since August 11, 1994. Schedule 3.1(ab) sets forth for each
business unit of the Retained Business as of the date or dates
specified, the following information (in each case by number of items
and dollar amount): (A) as of September 30, 1994, transactions
(financial or otherwise) not processed on the same day, (B) as of
September 30, 1994, reject rate by quality control by error reason,
(C) as of September 30, 1994, any kick-out transactions, (D) as of
September 30, 1994, adjustment transactions processed, (E) as of
September 30, 1994, "as of" trades processed and reasons therefor and
(F) as of September 30, 1994, financial transactions processed,
including, without limitation, purchases, exchanges, transfers and
redemptions by account.
(ac) Accuracy of Representations and Warranties. No representation
or warranty made by the Company or any of its subsidiaries in this
Agreement or the Schedules hereto (which are an integral part hereof) is
false or misleading in any material respect or contains any material
misstatement of fact.
SECTION 3.2. Representations and Warranties of CMC. CMC represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. CMC is a bank
holding company registered under the Bank Holding Company Act. Each of
CMC and CMB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, in the case of CMC, and
the United States, in the case of CMB, and has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as now being conducted. Each of CMC and CMB is duly
qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a material
adverse effect on CMC and its subsidiaries taken as a whole.
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True, accurate and complete copies of the CMC's certificate of
incorporation and by-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been made available to the Company.
(b) Capital Structure. As of the Business Day immediately preceding
the date of this Agreement, the authorized capital stock of CMC consists
of 500,000,000 shares of CMC Common Stock and 100,000,000 shares of
preferred stock, without par value. At the close of business on September
30, 1994, (i) 181,289,886 shares of CMC Common Stock and 56,000,000
shares of preferred stock were issued and outstanding, (ii) 4,000,000
shares of CMC Common Stock were held by CMC in its treasury, (iii)
19,011,983 shares of CMC Common Stock were reserved for issuance pursuant
to The Chase Lincoln First Bank, N.A. 1982 Incentive Stock Plan, The
Chase Manhattan 1982 Long-Term Incentive Plan, The Chase Manhattan 1987
Long-Term Incentive Plan and The Chase Manhattan 1994 Long-Term Incentive
Plan, 3,310,875 shares of CMC Common Stock were reserved for issuance
pursuant to warrants issued in settlement of a legal action, 14,000,000
shares of CMC Common Stock were reserved for issuance pursuant to The
Chase Manhattan Stock Option Program for Employees and 9,596,151 shares
of CMC Common Stock were reserved for issuance pursuant to CMC's Dividend
Reinvestment and Stock Purchase Plan and (iv) 2,500,000 shares of CMC
Junior Participating Preferred Stock were reserved for issuance in
connection with the rights to purchase shares of CMC Junior Participating
Preferred Stock pursuant to the Rights Agreement dated as of February 15,
1989, between CMC and Mellon Securities Trust Company, as successor
Rights Agent. Except as set forth above, at the close of business on the
Business Day immediately preceding the date of this Agreement, no shares
of capital stock or other voting securities of CMC were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of
CMC are, and all shares which may be issued pursuant to this Agreement
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are not any
bonds, debentures, notes or other indebtedness of CMC having the right to
vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of CMC may vote.
Except as set forth above, as of the close of business on the Business
Day immediately preceding the date of this Agreement, there are not any
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which CMC or any of its
subsidiaries is a party or by which any of them is bound obligating CMC
or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
voting securities of CMC or obligating CMC or any of its subsidiaries to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. As of the
close of business on the Business Day immediately preceding the date of
this Agreement, there are not any outstanding contractual obligations of
CMC or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of CMC.
(c) Authority; Noncontravention. CMC has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the other Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of
CMC. This Agreement has been duly executed and delivered by CMC and
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of CMC, enforceable
against it in accordance with its terms. None of the execution and
delivery of this Agreement, the other Documents to which CMC is a party
or the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions of this Agreement or such other
Documents will conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to
a right of termination, cancellation or acceleration of any obligation or
to loss of a material benefit under, or result in the creation of any
Lien upon any of the properties or assets of CMC or CMB under, (i) the
certificate of incorporation or by-laws of CMC or the comparable charter
or organizational documents of any other subsidiary of CMC (including
CMB), (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license to which CMC or CMB is a party or by which CMC or CMB or any of
their respective assets are bound or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law,
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ordinance, rule or regulation applicable to CMC, CMB or their respective
properties or assets other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a material adverse
effect on CMC and its subsidiaries taken as a whole, (y) materially
impair the ability of CMC to perform its obligations under this Agreement
or the other Documents to which it is a party or (z) prevent the
consummation of any of the transactions contemplated by this Agreement or
such other Documents to which it is party. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to CMC or any
subsidiary of CMC in connection with the execution and delivery of this
Agreement and any of the other Documents to which it is a party, or the
consummation by CMC or CMB of any of the transactions contemplated hereby
and thereby except for (i) filings pursuant to the Bank Holding Company
Act, (ii) the filing with the SEC of the Form S-4 and such reports under
Sections 13 and 16(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iii) the filing of the Certificate of Merger with the New
York Secretary of State and the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, (iv) such filings as may
be required in connection with the New York State Real Property Transfer
Tax, the New York State Real Property Transfer Gains Tax and the New York
City Real Property Transfer Tax (collectively, the "Gains Taxes"), (v)
filings or applications with (A) the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act with respect to the
Merger; (B) the Office of the Comptroller of the Currency ("OCC") in
connection with (I) a possible conversion of Chase Cal (as defined in
Section 5.15) into a bank, (II) the Bank Merger, and (III) the assumption
by Chase Cal of custody relationships of UST-Cal in accordance with
Section 5.15; (C) the FDIC in connection with a possible conversion of
Chase Cal into a bank; (D) New York State Department of Banking with
respect to the acquisition of USTNY and (E) various state regulatory
authorities, (vi) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the
"takeover" or "blue sky" laws of various states, (vii) such filings,
consents or approvals as may be required in connection with qualifying
Chase Cal pursuant to Section 5.15 and (viii) such other consents,
approvals, orders, authorizations, registrations, declarations and
filings the failure of which to obtain or make could not reasonably be
expected to have a material adverse effect on CMC and its subsidiaries
taken as a whole.
(d) SEC Documents; Undisclosed Liabilities. CMC has filed all
required reports, schedules, forms, statements and other documents with
the SEC since January 1, 1994 (the "CMC SEC Documents"). As of their
respective dates, the CMC SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such CMC SEC Documents, and none of the CMC SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent that information
contained in any CMC SEC Document has been revised or superseded by a
later CMC SEC Document, none of the CMC SEC Documents contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of CMC included in the CMC
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a basis
consistent with CMC's financial statements included in its CMC SEC
Documents (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of CMC and its consolidated
subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the CMC SEC Documents, neither CMC nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally
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accepted accounting principles to be set forth on a consolidated balance
sheet of CMC and its consolidated subsidiaries or in the notes thereto
and which, individually or in the aggregate, could reasonably be expected
to have a material adverse effect on CMC and its subsidiaries taken as a
whole.
(e) Information in Disclosure Documents and Registration
Statements. None of the information supplied by CMC or its
representatives for inclusion or incorporation by reference in (i) the
Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading and (ii) the Proxy
Statement will, at the date mailed to stockholders and at the time of the
meeting of the Company's stockholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules
and regulations thereunder, except that no representation is made by CMC
with respect to statements made therein based on information supplied by
the Company for inclusion in the Form S-4 or with respect to information
concerning the Company or any of its subsidiaries incorporated by
reference in the Form S-4.
(f) Absence of Certain Changes or Events. Except as disclosed in
the CMC SEC Documents filed and publicly available prior to the date of
this Agreement (the "Filed CMC SEC Documents") or, as of the Closing
Date, as disclosed in the CMC SEC Documents filed and publicly available
before the Closing Date or in the CMC Bring Down Certificate, (i) since
the date of the most recent audited financial statements included in the
Filed CMC SEC Documents, there has not been any material adverse change
in CMC and its subsidiaries taken as a whole or any event affecting CMC
and its subsidiaries that could reasonably be expected to have such a
material adverse effect, and (ii) there has not been (A) any split,
combination or reclassification of any of CMC's capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock, (B) any damage, destruction or loss, whether or not covered by
insurance, that has had or is likely to have a material adverse effect on
CMC and its subsidiaries taken as a whole, or (C) any change in
accounting methods, principles or practices by CMC materially affecting
its assets, liabilities or business, except insofar as may have been
required (in the opinion of the CMC's independent accountants) by a
change in generally accepted accounting principles.
(g) Litigation. Except as disclosed in the Filed CMC SEC Documents
or, as of the Closing Date, as disclosed in CMC SEC Documents filed and
publicly available before the Closing Date or in the CMC Bring Down
Certificate, there is no claim, investigation, suit, action or proceeding
pending or, to the knowledge of CMC, threatened, against any of CMC or
any of its subsidiaries before or by any Governmental Entity or
arbitrator that, individually or in the aggregate, could reasonably be
expected to (i) have a material adverse effect on CMC and its
subsidiaries taken as a whole, (ii) materially impair the ability of CMC
to perform its obligations under this Agreement or any of the other
Documents to which it is a party or (iii) prevent, delay or alter the
consummation of any or all of the transactions contemplated hereby or
thereby, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against CMC or any of
its subsidiaries having, or which could reasonably be expected to have,
any such effect.
(h) Agreements with Bank Regulators. Neither CMC nor CMB is a party
to any written agreement or memorandum of understanding with, or a party
to any commitment letter or similar undertaking to, or is subject to any
order, decree or directive by, or is a recipient of any extraordinary
supervisory letter from, or since January 1, 1993 has been required to
adopt any board resolution by, any Regulator which restricts materially
the conduct of its business, or in any manner relates to its capital
adequacy, its credit policies or its management, except for those the
existence of which has been disclosed to the Company prior to the date of
this Agreement, nor has CMC or CMB been advised by any Regulator that it
is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum or understanding, extraordinary supervisory
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letter, commitment letter or similar submission, or requiring (or is
considering the appropriateness of requiring) the adoption of any such
board resolution, except as disclosed in writing to the Company prior to
the date hereof.
(i) Compliance with Applicable Laws. CMC and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of,
and have made all filings, applications and registrations with, all
Governmental Entities which individually or in the aggregate are material
to the operation of the businesses of CMC and its subsidiaries taken as a
whole (the "CMC Permits"). All CMC Permits are in full force and effect
in all material respects. CMC and its subsidiaries are in compliance with
the terms of the CMC Permits, except where the failure so to comply would
not have a material adverse effect on CMC and its subsidiaries taken as a
whole. Except as disclosed in the Filed CMC SEC Documents or, as of the
Closing Date, as disclosed in CMC SEC Documents filed and publicly
available before the Closing Date or in the CMC Bring Down Certificate,
the businesses of CMC and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity,
except for possible violations which individually or in the aggregate do
not, and could not reasonably be expected to, have a material adverse
effect on CMC and its subsidiaries taken as a whole. Except for routine
examinations by Bank Regulators, as of the date of this Agreement, to the
knowledge of CMC, no investigation by any Governmental Entity with
respect to CMC or any of its subsidiaries is pending or threatened, other
than, in each case, those the outcome of which could not reasonably be
expected to have a material adverse effect on CMC and its subsidiaries
taken as a whole.
(j) Consummation of Transactions. CMC has not received notice from
any Federal or state governmental agency or authority indicating that it
would oppose or not grant or issue its consent or approval, if required,
with respect to the transactions contemplated by this Agreement. To the
best knowledge of CMC, no event has occurred, and no condition exists,
which would materially and adversely affect its ability to effect the
transactions contemplated hereby or to make payment of the Merger
Consideration at the time it would be required to do so under this
Agreement.
(k) Voting Requirements. No action by the stockholders of CMC is
required to approve this Agreement and the transactions contemplated by
this Agreement.
(l) Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on
behalf of CMC.
(m) Accuracy of Representations and Warranties. No representation
or warranty made by CMC in this Agreement is false or misleading in any
material respect or contains any material misstatement of fact.
ARTICLE IV
Covenants
SECTION 4.1. Covenants of the Company with Respect to the Retained
Business. During the period from the date of this Agreement and continuing
until the Effective Time, the Company agrees as to itself and its subsidiaries
that, except for the Distribution and the other transactions expressly
provided for in the Distribution Agreement and the Contribution Agreement, as
expressly contemplated or permitted by this Agreement, or to the extent that
CMC shall otherwise consent in writing:
(a) Ordinary Course. The Company and its subsidiaries shall each
carry on the Retained Business in the usual, regular and ordinary course
consistent with past practice and use its reasonable efforts to preserve
intact the present business organization, keep available, consistent with
past practice, the services of Prospective Retained Employees (as defined
in Section 5.8(a)) and preserve the relationships with customers,
suppliers and others having business dealings with the Retained Business,
it being understood that (i) certain employees of the Retained Business
will also be engaged in activities for the businesses to be contributed
and distributed to New Trustco and New Holdings, (ii) the failure of any
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employees of the Retained Business to remain employees of the Retained
Business or become employees of CMC or any affiliate of CMC shall not
constitute a breach of this covenant and (iii) the Retained Company and
its subsidiaries may comply with their respective contractual obligations
under the contracts to which they are parties (provided that the
execution of such contracts by the Retained Company or the applicable
subsidiary does not constitute a breach of, or default under, this
Agreement).
(b) Changes in Stock. The Company shall not, nor shall it permit
any subsidiaries of the Retained Company to, nor shall the Company
propose to, (i) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
(other than phantom share units required to be issued under any Benefit
Plan) or (ii) other than in connection with the exercise of stock options
outstanding as of the date of this Agreement under any Benefit Plan,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any shares of capital stock of
the Company or any of its subsidiaries; provided, however, that the
foregoing shall not prohibit the redemption by MFSC of capital stock
issued to the Company or the conversion of debt or preferred equity of
MFSC issued to the Company into common equity in connection with or in
anticipation of the transactions contemplated by the Distribution
Agreement.
(c) Issuance of Securities. Except as set forth in Schedule 4.1(c),
the Retained Company shall not, nor shall the Retained Company permit any
of its subsidiaries to, issue, transfer or sell, or authorize or propose
or agree to the issuance, transfer or sale by the Retained Company or any
such subsidiary of, any shares of its capital stock of any class or other
equity interests or any securities convertible into, or any rights,
warrants, calls, subscriptions, options or other rights or agreements,
commitments or understandings to acquire, any such shares, equity
interests or convertible securities, other than (i) the issuance of
shares of Company Common Stock (x) upon the exercise of stock options
outstanding as of the date of this Agreement pursuant to any Benefit
Plan, (y) to make any payment under any Benefit Plan that is required to
be made in the form of shares of Company Common Stock or (z) to make
acquisitions of capital stock or assets of another entity provided that
such acquisition is permitted pursuant to clause (e) of this Section 4.1
and (ii) issuances by a wholly owned subsidiary of its capital stock to
its parent.
(d) Governing Documents. The Company shall not, nor shall it permit
any subsidiaries of the Retained Company to, amend or propose to amend
its certificate of incorporation (or, if applicable, its articles of
incorporation or other charter document) or by-laws.
(e) No Acquisitions. The Retained Company shall not, nor shall it
permit any of its subsidiaries to, (i) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any business or any corporation or other business organization
that would be directly or indirectly acquired by CMC in the Merger, (ii)
consummate any acquisition within 3 business days before or 1 business
day after the Closing Date, or (iii) make any other investment in any
person (whether by means of loan, capital contribution, purchase of
capital stock, obligations or other securities, purchase of all or any
integral part of the business of the person or any commitment or option
to make an investment or otherwise) that would be directly or indirectly
acquired by CMC in the Merger except for investments by the Retained
Company in its existing wholly owned subsidiaries and investments made in
the ordinary course of business consistent with past practices in an
aggregate amount not exceeding $250,000.
(f) No Dispositions. The Retained Company shall not, nor shall it
permit any of its subsidiaries to, sell, lease, license, encumber or
otherwise dispose of, or agree to sell, lease, license, encumber or
otherwise dispose of, any of the assets of the Retained Business other
than in the ordinary course of business consistent with past practice and
the sale or other disposition of obsolete equipment.
(g) Indebtedness. The Retained Company shall not, nor shall it
permit any of its subsidiaries to, incur (which shall not be deemed to
include (i) refinancings of existing indebtedness; provided that, such
refinancings shall not increase the aggregate amount of indebtedness, or
contain any terms which are more restrictive in any material respect on
the Retained Company or the applicable subsidiary or
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(ii) deposits accepted in the ordinary course of business by the Retained
Company and its subsidiaries) any indebtedness for borrowed money or any
obligation evidenced by a promissory note or other instrument or
guarantee any such indebtedness or obligation or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the
Retained Company or any of its subsidiaries or guarantee any obligations
of others other than (x) in the ordinary course of business consistent
with past practice, (y) pursuant to existing credit or guaranty
agreements or (z) indebtedness (including indebtedness incurred to fund
the in substance defeasance of the 8% Notes due 1996) incurred pursuant
to a written agreement that provides that such indebtedness may be
assumed by New Holdings or a subsidiary of New Holdings and that, upon
such assumption, the Retained Company and its subsidiaries shall have no
obligation or liability in respect of such indebtedness.
(h) Benefit Plans. Except as otherwise provided in or contemplated
by this Agreement, the Distribution Agreement or the Contribution
Agreement, the Company shall not, nor shall it permit any of its
subsidiaries to, (i) adopt any Benefit Plan or amend any Benefit Plan
other than a Retained Plan to the extent such adoption or amendment (x)
would create or increase any liability or obligation on the part of the
Company or any of its subsidiaries that will not either (A) be fully
performed or satisfied prior to the Effective Time or (B) be assumed by
New Holdings or New Trustco pursuant to the Contribution Agreement or the
Distribution Agreement or (y) would increase the number of shares of
Company Common Stock (if any) to be issued under such Benefit Plan; (ii)
amend any Retained Plan in any manner that would increase the liabilities
or obligations of the Company or any of its subsidiaries under such
Retained Plan or would increase the number of shares of Company Common
Stock to be issued under such Retained Plan or (iii) except for normal
increases in the ordinary course of business consistent with past
practice, increase the base salary of any Prospective Retained Employee.
Notwithstanding the foregoing, it is understood and agreed that the
Annual Incentive Plan of U.S. Trust Corporation may be amended so as (i)
to provide that each employee who terminated employment prior to January
1, 1992 shall be entitled at the Effective Time to receive payment with
respect to the then outstanding balance of his or her account under the
plan in an amount up to 120% of such balance and (ii) to increase the
rate of interest to be credited to participants' accounts for 1994 to
compensate for extraordinary charges to the Company's earnings for 1994
required to be recognized in connection with the Merger.
(i) Other Actions. Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Section 4.1, the Retained Company
shall not, nor shall it permit any of its subsidiaries to, take any
action that would or is reasonably likely to result in any of the
conditions to the Merger set forth in Article VI not being satisfied or
would materially impair the ability of the Company to consummate the
Distribution or the Merger or USTNY to consummate the transactions
contemplated by the Contribution Agreement and the Distribution Agreement
in accordance with the terms thereof, or materially delay such
consummation.
(j) Advice of Changes; Filings. The Company shall promptly advise
CMC orally and in writing of any change or development or combination of
changes or developments that would cause the representation in Section
3.1(i) to be untrue. The Company shall promptly provide CMC (or its
counsel) copies of all filings (other than those filings, or portions
thereof, which CMC has no reasonable interest in obtaining in connection
with the Merger or the transactions contemplated hereby) made by the
Company or any of its subsidiaries with any Federal, state or foreign
Governmental Entity in connection with this Agreement, the Distribution
Agreement, the Contribution Agreement and the transactions contemplated
hereby and thereby.
(k) Accounting Policies and Procedures. The Retained Company will
not and will not permit any of its subsidiaries to change any of its
accounting principles, policies or procedures, except such changes as may
be required, in the opinion of Coopers & Lybrand L.L.P., the Company's
independent accountants, by generally accepted accounting principles.
(l) New Trustco and New Holdings. The Company shall (i) use its
best efforts to organize New Holdings and New Trustco under the laws of
the State of New York and furnish all information required
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in connection with approvals of or filings with Bank Regulators and other
Governmental Entities in order to organize New Holdings as a bank holding
company and New Trustco as a bank and trust company, (ii) not engage in
or allow transfers of assets or liabilities or engage or enter into other
transactions between the Retained Company and its subsidiaries, on the
one hand, and New Holdings and its subsidiaries, on the other hand,
except as contemplated hereby and by the Distribution Agreement, the
Contribution Agreement and the agreements referred to therein, (iii)
abide and cause New Holdings and its subsidiaries to abide by their
respective obligations under the Distribution Agreement, the Contribution
Agreement and the agreements referred to therein and (iv) not terminate
or amend, or waive compliance with any obligations under, the
Distribution Agreement, the Contribution Agreement or any of the
agreements referred to therein.
(m) Liens. The Company shall not, and shall not permit any of its
subsidiaries to, create, incur or assume any Lien on the Retained Assets
(as defined in the Contribution Agreement), except for Liens created,
incurred or assumed in the ordinary course of business consistent with
the past practices of the Company and its subsidiaries.
(n) Material Contracts. The Retained Company shall not, and shall
not permit its subsidiaries to, (i) enter into other than in the ordinary
course of business, any material contract relating to the Acquired Assets
or Assumed Liabilities that cannot be assigned, free of liability to the
Retained Company and its subsidiaries, to New Holdings or one of its
subsidiaries in connection with the transactions contemplated in the
Distribution Agreement and Contribution Agreement or (ii) enter into,
terminate, or modify in any material respect any Material Contract or any
Customer Agreement other than in the ordinary course of business
consistent with past practice and, in the case of any Customer Agreement,
without consultation with CMC. In addition, the Company shall notify CMC
in writing at least 30 days before making, or in any way becoming
committed to make, any capital expenditure, or series of related capital
expenditures relating to the Processing Business and Related Back Office,
in excess of $50,000.
SECTION 4.2. Covenants of the Company. During the period from the date
of this Agreement and continuing to the Effective Time, the Company agrees as
to itself and its subsidiaries that, except as CMC shall otherwise agree in
writing or as provided in the documents:
(a) Change in Business. The Company shall not and shall not permit
its subsidiaries to make any change in the lines of business engaged in
by (i) the Retained Company or any of its subsidiaries as of the date
hereof or (ii) the Company and any of its subsidiaries as of the date
hereof that would, based on the facts and circumstances and conduct of
the particular business, materially increase the potential liability of
the Retained Company or any of its subsidiaries under statutes or legal
doctrines permitting the imposition of liability on a parent corporation
in respect of the liabilities of its subsidiaries.
(b) Actions Affecting Merger or Distribution. The Company shall
not, and shall not permit any of its subsidiaries to, take any action,
including, without limitation, with respect to the terms of the
certificate of incorporation or by-laws of New Holdings, that would or is
reasonably likely to result in any of the conditions to the Merger set
forth in Article VI not being satisfied or that would materially impair
the ability of the Company to consummate the Distribution in accordance
with the terms of the Distribution Agreement or the Merger in accordance
with the terms hereof or would materially delay such consummation or that
would disqualify the Distribution as a tax-free spin-off within the
meaning of Section 355 of the Code.
(c) Certain Indebtedness. The Company shall, or shall cause its
subsidiaries to, redeem or effect an in substance defeasance of the
outstanding indebtedness of the Company and its subsidiaries set forth in
Schedule 4.2(c).
(d) Delivery of Certain Information. The Company shall furnish to
CMC:
(i) as soon as available and in any event within 20 days after
the end of each month, (A) reports of the end of month and average
monthly balances of loans and overdrafts, book and collected deposits
and funds able to be invested, (B) a monthly receivables aging report
for the Processing Entities, (C) management profitability reports for
the Processing Businesses and
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management reports for the Computer Services Division, Securities
Services and Trust Operations and Bank Operations units and (D) a
balance sheet as of the end of each month for the Company and its
subsidiaries on a consolidated basis, in each case, substantially in
the form delivered to CMC prior to the date of this Agreement;
(ii) as soon as available, approved 1994 and 1995 capital budgets
for the Processing Business and the Related Back Office (as defined in
the Contribution Agreement) and related reports, in each case in the
form prepared by the Company and its subsidiaries in the ordinary
course of their business and consistent with past practices;
(iii) promptly upon receipt, copies of all reports submitted to
the Company or any of its subsidiaries by independent accountants in
connection with the examination of the financial statements of the
Retained Company;
(iv) promptly after the furnishing of each such document, copies
of any statement or report relating to the Retained Company or any of
its subsidiaries furnished to any other party pursuant to the terms of
any indenture, loan or credit or similar agreement and not otherwise
required to be furnished to CMC;
(v) promptly after request by CMC, information relating to any
employee benefit plan, arrangement, practice, policy or understanding
maintained by the Company, any of its subsidiaries or any Commonly
Controlled Entity for the benefit of any Retained Employee, including,
without limitation, any Benefit Plan and any plan, arrangement,
practice, policy or understanding relating to profit sharing, bonuses,
retainers, consulting, incentives, fringe benefits, perquisites,
automobiles, club memberships, vacation, child care, leaves of absence
(including, without limitation, maternity, paternity, military,
medical or other leaves of absence), insurance and other benefits; and
(vi) promptly after becoming aware thereof, notice of the
occurrence of any event or the existence of any circumstances that
could reasonably result in any material liability on the part of the
Company, any of its subsidiaries or any Commonly Controlled Entity
under Title I or Title IV of ERISA or under Section 412 or Chapter 43
of the Code.
(e) Execution of Post Closing Covenants Agreement and Services
Agreement. The Company shall cause New Holdings and New Trustco to
execute and deliver the Post Closing Covenants Agreement and the Services
Agreement on the Closing Date.
SECTION 4.3. Covenants of CMC. During the period from the date of this
Agreement and continuing until the Effective Time, CMC agrees as to itself and
its subsidiaries that:
(a) Actions Affecting Merger. CMC shall not take any action that
would or is reasonably likely to result in any of the conditions to the
Merger set forth in Article VI not being satisfied or that would
materially impair the ability of CMC to consummate the Merger in
accordance with the terms hereof or materially delay such consummation
and CMC shall promptly provide the Company (or its counsel) copies of all
filings (other than those filings, or portions thereof, which the Company
has no reasonable interest in obtaining in connection with the Merger or
the transactions contemplated hereby) made by CMC with any Federal, state
or foreign Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
(b) CMC Common Stock. CMC shall not split, combine or reclassify
any of the CMC Common Stock or authorize the (i) making of any in-kind
distribution or extraordinary cash dividend with respect to the CMC
Common Stock or (ii) issuance of any other securities in respect of or in
exchange for shares of the CMC Common Stock, provided the foregoing shall
not prohibit the issuance of securities of CMC convertible into CMC
Common Stock.
(c) Tax Free Spin-Off. CMC shall not, and shall not permit any of
its subsidiaries to, take or cause or permit to be taken, any action that
would disqualify the Distribution as a tax-free spin-off within the
meaning of Section 355 of the Code.
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(d) Other Actions. Notwithstanding the fact that such action might
otherwise be permitted pursuant to this Section 4.3, CMC shall not, nor
shall it permit any of its subsidiaries to, take any action that would or
could reasonably be expected to result in the failure to satisfy any of
the conditions to the Merger set forth in Article VI, would materially
impair the ability of CMC to consummate the Merger in accordance with the
terms hereof or materially delay such consummation.
(e) Execution of Post Closing Covenants Agreement and Services
Agreement. CMC shall execute and deliver the Post Closing Covenants
Agreement and shall cause CMB to execute and deliver the Services
Agreement on the Closing Date.
SECTION 4.4. Mutual Covenants.
(a) The Company and CMC shall not, and shall not permit any of their
respective subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified
as to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material
respect or (iii) the failure to satisfy any of the conditions to the
Merger set forth in Article VI.
(b) The Company and CMC shall promptly advise the other party orally
and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, would have, a material adverse effect on such
party and its subsidiaries taken as a whole.
(c) For purposes of the tax opinions to be delivered pursuant to
Section 6.2(h) and 6.3(f), each of CMC and the Company shall deliver to
O'Melveny & Myers, counsel to CMC, and to Cravath, Swaine & Moore,
counsel to the Company, representation letters substantially in the form
of the respective letters set forth in Exhibit III, dated as of the
Closing Date.
(d) CMC and the Company agree that they shall negotiate and within
60 days after the date hereof agree on a definitive form of the Services
Agreement substantially in accordance with the terms of that certain
Processing Agreement Term Sheet dated as of the date of this Agreement
and executed by authorized representatives of CMC and the Company (the
"Processing Services Term Sheet").
(e) CMC and the Company shall each use reasonable efforts to
negotiate and to agree, and to cause CMB and USTNY to agree upon, and to
execute and deliver, an agreement providing for the Bank Merger under 12
U.S.C. 215a and applicable law ("Bank Merger Agreement"), provided,
however, that the Bank Merger Agreement shall provide that consummation
of the Bank Merger is conditioned on occurrence of the Merger and that
USTNY and its affiliates shall incur no additional liability or expense
in connection therewith.
ARTICLE V
Additional Agreements
SECTION 5.1. Preparation of Form S-4, Form S-1, Form 10 and the Proxy
Statement; Stockholders Meeting.
(a) As soon as practicable following the date of this Agreement, the
Company and CMC shall prepare and file with the SEC the Form S-4, the
Form S-1 (if required), the Form 10 and the Proxy Statement. Each of the
Company and CMC shall use its reasonable efforts to have the Form S-4 and
Form S-1 (if required) declared effective under the Securities Act, and
the Form 10 declared effective under the Exchange Act, as promptly as
practicable after such filing. The Company will use its reasonable
efforts to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after the Form S-4, Form S-1 (if
required) and Form 10 are declared effective under the Securities Act and
the Exchange Act, as the case may be. CMC shall also take any action
(other than qualifying to do business in any jurisdiction in which it is
not now so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of CMC Common Stock in
the
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Merger and the Company shall furnish all information concerning the
Company and the holders of the Company Common Stock and rights to acquire
Company Common Stock pursuant to the Stock Plans as may be reasonably
requested in connection with any such action.
(b) The Company shall, as soon as practicable following the date on
which the Form S-4, Form S-1 (if required) and Form 10 are declared
effective, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") for the purpose of voting upon
the approval and adoption of this Agreement and upon the Distribution.
The Company shall, through its Board of Directors, recommend to its
stockholders approval of this Agreement and the transactions contemplated
by this Agreement.
SECTION 5.2. Letter of the Company's Accountants. The Company shall use
its best efforts to cause to be delivered to CMC a letter of Coopers & Lybrand
L.L.P., the Company's independent public accountants, dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to CMC, in form and substance reasonably satisfactory to CMC and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form
S-4.
SECTION 5.3. Letter of CMC's Accountants. CMC shall use its best
efforts to cause to be delivered to the Company a letter of Price Waterhouse
LLP, CMC's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
SECTION 5.4. Access to Information; Confidentiality.
(a) The Company shall, and shall cause its subsidiaries to, afford
to CMC and its officers, employees, accountants, counsel, financial
advisors and other representatives of CMC, reasonable access during the
period prior to the Effective Time to all its properties, books,
contracts, commitments, personnel and records and shall make available to
such persons reasonable facilities (including office space and
telephones) in connection therewith. During the period prior to the
Effective Time, the Company shall, and shall cause its subsidiaries to,
furnish promptly to CMC (i) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to
the requirements of Section 13(a) and 15(d) of the Exchange Act, and
copies of public portions of each report, schedule, registration
statement, and other document filed by it or any subsidiary during such
period with any state or Federal banking or bank holding company
regulatory authorities, and (ii) all other information concerning its
business, properties and personnel as CMC may reasonably request;
provided that the Company shall not be required to provide information
regarding New Holdings or New Trustco unless such information relates to
liabilities that could be incurred by one of the Processing Entities in
connection with the transactions contemplated by this Agreement and the
other Documents or otherwise has a nontrivial effect on the Retained
Business.
(b) During the period prior to the Effective Time, CMC shall furnish
promptly to the Company a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to
the requirements of Section 13(a) and 15(d) of the Exchange Act.
(c) Except as required by law, each of the Company and CMC will
hold, and will cause its respective officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to
hold, any nonpublic information in confidence in accordance with the
confidentiality agreements, dated August 17, 1994 (the "Confidentiality
Agreements"), between CMC and the Company.
SECTION 5.5. Legal Conditions to Distribution and Merger; Legal
Compliance.
(a) CMC shall use reasonable efforts to comply promptly with all
legal and regulatory requirements which may be imposed on itself or its
respective subsidiaries with respect to the Merger (which actions
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shall include, without limitation, furnishing all information required in
connection with approvals of or filings with Bank Regulators or other
Governmental Entities required to be made or obtained by CMC or its
subsidiaries). Subject to the terms and conditions hereof, CMC will, and
will cause its subsidiaries to, promptly use its reasonable efforts to
obtain any consent, authorization, order or approval of, or any exemption
by, and to satisfy any condition or requirement imposed by, any Bank
Regulator, Governmental Entity or other public or private third party,
required to be obtained, made or satisfied by CMC or any of its
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement or the Distribution Agreement
(including the Bank Merger).
(b) The Company will use its reasonable efforts to comply promptly
with all legal and regulatory requirements which may be imposed on itself
or its respective subsidiaries with respect to the Distribution and the
Merger (which actions shall include, without limitation, furnishing all
information required in connection with approvals of or filings with Bank
Regulators or other Governmental Entities required to be made or obtained
by the Company or its subsidiaries). Subject to the terms and conditions
hereof, the Company will, and will cause its subsidiaries to, promptly
use its reasonable efforts to obtain any consent, authorization, order or
approval of, or any exemption by, and to satisfy any condition or
requirement imposed by, any Bank Regulator, Governmental Entity or other
public or private third party, required to be obtained, made or satisfied
by the Company or any of its subsidiaries in connection with the
Distribution or the Merger or the taking of any action contemplated
thereby or by this Agreement or the Distribution Agreement, including
without limitation in obtaining the ruling contemplated by the Ruling
Request; provided, however, that the Company and its subsidiaries shall
not be required hereunder to assume or bear any additional liability in
connection with the Bank Merger. The Company agrees that it shall use its
reasonable efforts to take, and to cause its subsidiaries to take, such
actions as are necessary to assure material compliance by the Retained
Company and its subsidiaries with all applicable legal and regulatory
requirements relating to employment and benefits matters and other
applicable governmental regulations (and in this connection will have due
regard to any reasonable request of CMC as to what, if any, such actions
should be taken).
(c) Each of the Company and CMC will promptly cooperate with and
furnish information to each other in connection with any such
requirements imposed upon any of them or any of their respective
subsidiaries in connection with the Distribution or the Merger.
(d) Nothing herein shall obligate any party to take any action
pursuant to the foregoing if the taking of such action or such compliance
or the obtaining of such consent, authorization, order, approval or
exemption is likely, in such party's reasonable opinion, (i) to be
materially burdensome to such party and its subsidiaries taken as a whole
or to impact in a materially adverse manner the economic or business
benefits of the transactions contemplated by this Agreement, the Bank
Merger Agreement (in the form agreed to by CMC, the Company, CMB and
USTNY), the Contribution Agreement or the Distribution Agreement so as to
render inadvisable the consummation of the Merger, the Bank Merger, the
Contribution or the Distribution or (ii) to result in the imposition of a
condition or restriction on such party or on the Surviving Corporation of
the type referred to in Section 6.1(c) (it being understood that
compliance by CMC with Section 5.19 shall not constitute such an action).
Each of CMC and Company will promptly cooperate with and furnish
information to the other in connection with any such burden suffered by,
or requirement imposed upon, any of them or any of their subsidiaries in
connection with the foregoing.
SECTION 5.6. Rights Agreement. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
3.1(p)) requested in writing by CMC (including, if necessary, redeeming the
Rights immediately prior to the Effective Time or amending the Rights
Agreement) in order to render the Rights inapplicable to the Merger and the
other transactions contemplated by this Agreement and the Distribution
Agreement. Except as requested in writing by CMC, prior to the Stockholders
Meeting, the Board of Directors of the Company shall not (i) amend the Rights
Agreement or (ii) take any action with respect to, or make any determination
under, the Rights Agreement (including a redemption of the Rights).
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SECTION 5.7. Benefit Plans. Before the Effective Time, the Company
shall, and shall cause USTNY to, take all steps necessary to cause each of the
Benefit Plans maintained by the Company or USTNY other than (i) any such
Benefit Plan listed in Schedule 5.7 (the Benefit Plans so listed are
hereinafter referred to as the "Retained Plans") and (ii) the Transition Bonus
Plan adopted by the Retained Company pursuant to Section 5.8(e), to be
transferred pursuant to the Distribution Agreement and the Contribution
Agreement to New Holdings and to New Trustco, respectively, and to cause New
Holdings and New Trustco, respectively, to assume and become solely
responsible for all liabilities and obligations of the Company and USTNY under
each of the Benefit Plans so transferred. In the case of each such Benefit
Plan that is transferred to New Holdings or to New Trustco, the transfer and
assumption shall be effected prior to the New Holdings Distribution. Prior to
the Effective Time, Company shall, or shall cause its subsidiaries to, inform
the Retained Employees (as defined in Section 5.8(a)) of the transfer to, and
the assumption by, New Holdings or New Trustco of the liabilities under, the
Benefit Plans under which such Retained Employees are covered. The Company
shall cooperate with CMC, to the extent requested by CMC to do so, to
communicate with the Retained Employees concerning any employee benefit plans,
agreements, practices, policies or arrangements of CMC or any of its
affiliates to which they will be subject after the Effective Time. The Company
shall, and shall cause USTNY to, amend the Retained Plans and take such other
steps as may be necessary to:
(i) cause all stock options granted under the Retained Plans that
have not expired or that have not been exercised or cancelled prior to
the Effective Time, to be cancelled as of the Effective Time;
(ii) cause all payments required under the terms of the Retained
Plans to be made to the holders of stock options that are to be cancelled
as of the Effective Time pursuant to clause (i) above, to be made at the
Effective Time or as soon thereafter as practicable;
(iii) cause payments to be made, at the Effective Time or as soon
thereafter as practicable, to all persons with outstanding balances to
their credit under the Annual Incentive Plan of U.S. Trust Corporation at
the Effective Time, in amounts sufficient to discharge in full the
Company's obligations with respect to such balances; and
(iv) cause each of the Retained Plans other than the Retention Bonus
Program to be terminated as soon as all unexercised options under such
Plan have been cancelled, and all payments to be made with respect to
options or account balances under such Plan have been made, as provided
in clauses (i), (ii) and (iii) above.
SECTION 5.8. Employment Matters.
(a) Employment with Retained Business. Schedule 5.8(a) lists all
persons who are presently employed by the Retained Company in positions
associated with the conduct of the Retained Business, and designates
those persons New Holdings or any of its subsidiaries proposes to employ
prior to the Closing. CMC agrees to cause the Retained Company or its
affiliates to offer to retain approximately 1150 of the employees listed
in Schedule 5.8(a) in employment after the Closing and CMC has offered,
or will offer, to so employ (i) all employees employed in the MFS
Business except for those identified in writing to the Company by the
date of this Agreement, (ii) all employees employed in the UIT Business
except for those identified in writing to the Company by the date of this
Agreement and (iii) all other employees listed in Schedule 5.8(a) except
for those identified in writing to the Company as soon as possible
following the date of this Agreement, but in any event on or before
January 1, 1995. Any person listed in Schedule 5.8(a) to whom CMC has
made, or could make, a timely offer of continuing employment in
accordance with the immediately preceding sentence is referred to as a
"Prospective Retained Employee". In the event that any of the persons
designated on Schedule 5.8(a) as persons New Trustco proposes to become
employed with New Trustco or any of its affiliates prior to the Closing
are also persons CMC proposes to cause its subsidiaries to offer to
retain in employment after the Closing, CMC and the Company agree that
their respective representatives shall use their best efforts to resolve
the conflict as quickly, effectively and fairly as possible. The offer of
continuing employment to be made hereunder shall include provision for
the payment of base salary to each such employee at a rate at least equal
to the rate of base salary in effect for such employee immediately prior
to the Closing. Notwithstanding the foregoing, nothing contained herein
shall be construed as obligating CMC, the
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Surviving Corporation or any of its affiliates (x) to offer employment
after the Closing to any employee listed in Schedule 5.8(a) whose
employment with the Retained Company terminates for any reason prior to
the Closing or (y) to maintain any term or condition of employment
(including base salary) for any period following the Effective Time,
except as provided in Section 5.8(c). Those employees of the Retained
Company who accept such offer of continuing employment with one of CMC's
subsidiaries pursuant to this Agreement are hereinafter referred to as
the "Retained Employees".
(b) Employee Benefits. CMC agrees that on and after the Effective
Time, the Retained Employees shall be covered under the employee benefit
plans, programs, arrangements and policies (including, without
limitation, any stock option, bonus and incentive compensation plans)
maintained by CMC and its affiliates for their employees (such plans,
programs, arrangements, and policies are hereinafter referred to as
"CMC's Plans"), upon the same terms and conditions as are applicable to
other personnel employed by CMC and its affiliates in comparable
positions, subject, however, to the following:
(i) Except as provided in subparagraph (ii) below, service
performed by a Retained Employee for USTNY (or for any affiliate of
USTNY) prior to the Closing (such service is hereinafter referred to
as a Retained Employee's "Prior Service") shall be treated as service
performed for CMC and its affiliates for purposes of determining (w)
the Retained Employee's eligibility to participate in any of CMC's
Plans, (x) the Retained Employee's satisfaction of any service
requirement that is a condition for eligibility to receive any benefit
provided under any of CMC's Plans, (y) the Retained Employee's vesting
status with respect to any benefit under any of CMC's Plans and (z)
the amount of any benefit to which the Retained Employee is entitled
under any of CMC's Plans, in any case where the amount of the benefit
so provided is determined, in whole or in part, by reference to the
length of a participant's service with CMC and its affiliates (it
being understood that there shall be no credits to Retained Employees'
accounts under CMC's retirement and thrift plans with respect to any
period before the Closing Date and that no Retained Employee shall be
treated as having been a member of CMC's retirement plan as of any
date prior to the Closing Date).
(ii) In the case of any Retained Employee (x) whose employment
with CMC and its affiliates is terminated within two years following
the Closing Date, (y) whose "attained age" and his or her "Years of
Service" or "units of Credited Service", as those terms are defined in
the Employees' Retirement Plan of United States Trust Company of New
York and Affiliated Companies, immediately prior to the Closing total
70 or more and (z) who has at least ten years of Prior Service, such
Retained Employee's Prior Service shall not be taken into account for
purposes of such Retained Employee's eligibility to participate in or
receive any benefit provided under any of CMC's Plans that provide
post-retirement welfare benefits.
(iii) Each Retained Employee shall be covered under those of
CMC's Plans that are health and welfare plans without exclusion for
preexisting conditions.
(c) Severance and Other Benefits on Termination. CMC agrees to
provide any Retained Employee whose employment with CMC and its
affiliates is involuntarily terminated (as hereinafter defined) within
two years following the Closing Date with the severance benefits and
other benefits described in Schedule 5.8(c) in lieu of any severance
benefits provided under any of CMC's Plans. For purposes of this Section
5.8(c) and Schedule 5.8(c), a Retained Employee's employment with CMC and
its affiliates shall be treated as having been "involuntarily terminated"
if he or she is no longer employed by CMC or any of its affiliates as a
result of the termination of his or her employment (i) by CMC or any of
its affiliates for any reason other than for cause or (ii) by the
Retained Employee after (A) any reduction in his or her salary or (B) any
change, without the Retained Employee's consent, in location of his or
her place of employment to a location outside the City of New York or, if
such place of employment is not in the City of New York, to a city more
than 25 miles distant from the city in which his or her place of
employment is located on the Closing Date.
(d) Data to be Furnished. At the Closing, the Company shall furnish
CMC with information as to (i) the rate of base salary in effect for each
Retained Employee immediately before the Closing, (ii) each
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Retained Employee's position with the Retained Company immediately before
the Closing and (iii) each Retained Employee's Prior Service. CMC agrees
to furnish New Holdings and New Trustco with such information as they may
request from time to time after the Closing, regarding any Retained
Employee's period of service and base salary with CMC and its affiliates.
(e) Transition Bonus Program. As soon as practicable after the date
of this Agreement, the Company shall cause USTNY and its affiliates
included in the Retained Business to adopt a program (the "Transition
Bonus Program") pursuant to which each of the employees listed in
Schedule 5.8(e) who becomes a Retained Employee shall be entitled to
receive from the Retained Company a bonus (the "Transition Bonus") in the
amount specified for such employee in Schedule 5.8(e) if the employee
completes the period of service with the Retained Company following the
Closing Date that is specified for such employee in Schedule 5.8(e) (the
employee's "Required Service"). The Transition Bonus so payable to any
such employee shall be paid in the form of a single lump sum cash
payment, as soon as practicable after the employee completes his or her
Required Service. For purposes of the foregoing, a Retained Employee
whose employment with the Retained Company is involuntarily terminated
(as defined in Section 5.8(c)) after the Closing Date but before he or
she has completed his or her Required Service shall be treated as having
completed such Required Service on the day immediately preceding the date
on which his or her employment was so terminated. As soon as practicable
after the date of this Agreement, the Company shall furnish, or cause its
subsidiaries to furnish, each employee listed in Section 5.8(e) with
written notice (the form of which notice shall be mutually agreed upon in
advance by the Company and CMC) advising the employee of his or her
eligibility to participate in the Transition Bonus Program, the amount of
the Transition Bonus he or she may become entitled to receive and the
Required Service he or she must complete to receive such Bonus.
SECTION 5.9. Employment Agreements. The Company shall use reasonable
efforts to cause the Retained Company to enter, or to facilitate CMB's or any
affiliates' entry, as applicable, into employment agreements with such of the
Prospective Retained Employees who are then still employees of the Company or
any of its affiliates, as CMC shall have specified to the Company in writing
not less than ten business days before the Closing Date on terms satisfactory
to CMC. Notwithstanding the foregoing, it is understood and agreed that the
failure of any such officer or employee to enter into an employment agreement
with CMC or the Retained Company shall not constitute a breach of this
Agreement.
SECTION 5.10. Fees and Expenses. All fees and expenses incurred in
connection with the Merger, the Distribution, this Agreement, the Distribution
Agreement and the transactions contemplated by this Agreement and the other
Documents shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated, except that expenses incurred in connection
with printing and mailing the Proxy Statement, the Form S-4, the Form S-1 (if
required) and the Form 10, shall be shared equally by CMC and the Company.
SECTION 5.11. Distribution. Prior to the Closing, the Company will (a)
enter into the Distribution Agreement and the agreements contemplated thereby
to which the Company is to be a party and (b) cause each of USTNY, New
Holdings and New Trustco to enter into the Distribution Agreement, the
Contribution Agreement and each of the other Documents to which it is a party.
The Company will, and will cause USTNY, New Holdings and New Trustco to, take
all action necessary to effect the Distribution pursuant to the terms of the
Distribution Agreement, the Contribution Agreement and the other Documents.
SECTION 5.12. Public Announcements. CMC on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press
release or other public statements (it being understood that discussions by
the parties with financial analysts or other advisors shall not constitute
public statements) with respect to the transactions contemplated by this
Agreement and the Distribution Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange.
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SECTION 5.13. Private Letter Ruling. The Company and CMC each hereby
agree to cooperate with the other party and to use their reasonable best
efforts to obtain the private letter ruling contemplated by Section 6.2(c) of
this Agreement.
SECTION 5.14. Use of Name. From and after the Closing Date, CMC (i)
shall promptly change the name on all documents, stationery and facilities
relating to the Retained Business to a name that is not in any way similar to
the Company's or USTNY's names (or any name or initial similar thereto).
Nothing in this Section shall require CMC to undertake to reissue deposits or
rewrite outstanding loans or other agreements or documents except in the
ordinary course of business, it being understood, however, that reasonable
efforts will be used to change names in accordance with the provisions of the
first sentence of this Section.
SECTION 5.15. UST-CA. Prior to the Closing Date, CMC shall use its best
efforts to have The Chase Manhattan Trust Company of California, N.A. ("Chase
Cal") approved (if not already approved) by the California Department of
Insurance as a "qualified custodian", "qualified depository" and a "qualified
subcustodian", under Section 1104.9 of the California Insurance Code, and to
obtain such other approvals or make such other filings as are necessary to
qualify such bank or trust company to act as trustee and custodian (or
sub-custodian) under the Customer Agreements (as defined in the Contribution
Agreement) with respect to which U.S. Trust Company of California, N.A.
currently acts as trustee and custodian. The Company and CMC shall use their
reasonable best efforts to obtain all necessary consents to substitute Chase
Cal as trustee and custodian under such Customer Agreements.
SECTION 5.16. Affiliates. Prior to the Closing Date, the Company shall
deliver to CMC a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each such person to deliver to
CMC on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit VII hereto.
SECTION 5.17. Stock Exchange Listing. CMC shall use its best efforts to
cause the shares of CMC Common Stock to be issued in the Merger to be approved
for listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
SECTION 5.18. Capital Adequacy. On the Closing Date, CMC shall ensure
that USTNY, MFSC and UST-WY meet and satisfy all capital adequacy requirements
imposed by applicable law, Bank Regulators and other Governmental Entities.
ARTICLE VI
Conditions Precedent
SECTION 6.1. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved
and adopted by the affirmative vote or consent of the Requisite
Stockholders of the Company.
(b) NYSE Listing. The shares of CMC Company Stock issuable to the
Company's stockholders pursuant to this Agreement and under the Stock
Plans shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(c) Regulatory Approvals. Each of CMC and the Company shall have
obtained all requisite approvals of, or satisfied all requisite filing
requirements with, Bank Regulators and other Governmental Entities,
including all requisite approvals under, and the expiration of all
waiting periods in respect of, the Bank Holding Company Act. No such
approval applicable to the Merger, the Distribution or the Bank Merger
shall impose any condition or restriction upon CMC or New Holdings, or
any of their respective subsidiaries, including, without limitation, any
requirement to raise additional capital or to dispose of assets, which
would so materially adversely impact the economic or business benefits of
the transactions
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contemplated by this Agreement and the Distribution Agreement as to
render inadvisable the consummation of the Merger or the Distribution.
(d) No Injunctions or Restraints. (i) No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that each of the parties shall have used its reasonable efforts
to prevent the entry of any such injunction or other order and to appeal
as promptly as possible any such injunction or other order that may be
entered and (ii) no action, suit or other proceeding shall be pending or,
to the knowledge of the Company and CMC, threatened by any Governmental
Entity that, if successful, would restrict or prohibit the consummation
of the transactions contemplated in this Agreement or the other
Documents.
(e) Services Agreement. New Trustco, USTNY and CMC shall have
entered into the Services Agreement substantially on the terms and
conditions set forth in the Processing Services Term Sheet (as defined in
Section 4.4(d)) of date even herewith.
(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(g) Consummation of the Distribution. The Distribution shall have
become effective in accordance with the terms of the Distribution
Agreement, the Contribution Agreement and each of the agreements
contemplated thereby.
SECTION 6.2. Conditions to Obligations of CMC. The obligation of CMC to
effect the Merger is further subject to the following conditions, unless
waived by CMC:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement, except to the extent that any
representation or warranty shall be as of a specific date, in which case
such representation and warranty shall be true and correct as of such
date, and CMC shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of
the Company to such effect. The Company shall have delivered to CMC a
certificate (the "Company Bring Down Certificate"), dated as of the
Closing Date and reasonably satisfactory in form to CMC, that sets forth
each event that has occurred and each condition that exists that (i) had
not occurred or was not in existence as of the date of this Agreement and
(ii) if it had occurred or was in existence as of the date of this
Agreement would be required to be disclosed pursuant to Section 3.1(g),
(h), (l)(iii), (w) or (x). In determining the materiality of the failure
of any representation or warranty made by the Company to be true when
made, the parties shall consider whether the failure can be remedied by a
financial indemnity, whether New Holdings or New Trustco is obligated
under the Post Closing Covenants Agreement to indemnify against the
failure, and the financial ability of New Holdings or New Trustco, as
appropriate, to satisfy any indemnification obligation.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement and the Distribution Agreement at or
prior to the Closing Date, and CMC shall have received a certificate
signed on behalf of the Company by the chief executive officer and the
chief financial officer of the Company to such effect.
(c) Private Letter Ruling. The Service shall have issued and not
revoked a private letter ruling (the "Private Letter Ruling"), reasonably
satisfactory in form and substance to CMC, in response to the Ruling
Request, substantially to the effect that, on the basis of the facts,
representations, and assumptions existing at the Effective Time:
(i) the contribution by USTNY to New Trustco of certain assets
and the assumption of certain liabilities of USTNY by New Trustco, as
contemplated by the Contribution Agreement, will qualify
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for Federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a)(1)(D) of the Code or as tax-free under
Section 351 of the Code;
(ii) the distribution of all the capital stock of New Trustco to
the Company by USTNY, as contemplated by the Distribution Agreement,
will be tax-free for Federal income tax purposes to USTNY under
Section 361(a) of the Code and to the Company under Section 355(a) of
the Code;
(iii) the contribution by the Company to New Holdings of certain
assets (including, without limitation, all of the capital stock of New
Trustco) and the assumption of certain liabilities of the Company by
New Holdings, as contemplated by the Distribution Agreement, will
qualify for Federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a)(1)(D) of the Code or as tax-free
under Section 351 of the Code; and
(iv) the distribution of the stock of New Holdings on a pro rata
basis to the holders of the Company Common Stock will be tax-free for
Federal income tax purposes to the Company under Section 361(a) of the
Code and to the Company's stockholders under Section 355(a) of the
Code.
(d) Opinion of the Company's Counsel. CMC shall have received an
opinion dated the Closing Date of Cravath, Swaine & Moore, counsel to the
Company, and/or in-house counsel of the Company satisfactory to counsel
to CMC, to the effect that:
(i) the Company is a corporation validly existing and in good
standing under the laws of the State of New York; USTNY is a bank and
trust company validly existing and in good standing under the laws of
the State of New York. New Holdings is a corporation validly existing
and in good standing under the laws of the State of New York; and New
Trustco is a bank and trust company validly existing and in good
standing under the laws of the State of New York;
(ii) each of the Company, USTNY, New Holdings and New Trustco
(collectively, the "Company Parties") has the power and authority to
execute each Document to which it is a party and to consummate the
transactions contemplated hereby and thereby; the execution and
delivery of the Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by requisite
corporate action on the part of each Company Party that is a party
thereto and the stockholders of each such Company Party and each
Document has been duly executed and delivered by the Company Parties
that are party thereto and constitutes a legal, valid and binding
obligation of each such Company Party, enforceable in accordance with
its terms subject to applicable bankruptcy, insolvency, receivership
or other similar laws affecting the enforcement of creditors, rights
generally and subject, as to enforceability, to general principles of
equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law;
(iii) the execution, delivery and performance of the Documents by
each Company Party thereto will not (x) violate any Federal law or the
laws of the State of New York or (y) conflict with any provision of
the certificate of incorporation or by-laws of the applicable Company
Party. Such counsel expresses no opinion, however, as to any violation
of any law or regulation which may have become applicable to any
Company Party as a result of the involvement of CMC or any of its
subsidiaries in the transactions contemplated by this Agreement
because of CMC's or any of its subsidiaries' legal or regulatory
status or because of any other facts specifically pertaining to CMC or
any of its subsidiaries; and
(iv) any consent, approval, order or authorization of, any
registration, declaration or filing with, and any waiting period
imposed by, any governmental authority under Federal law or the laws
of the State of New York which is required by or with respect to any
Company Party in connection with the execution and delivery of the
Documents by the Company Parties that are party thereto or the
consummation by the Company Parties of the transactions contemplated
hereby or thereby, has been obtained or made or, in the case of any
such waiting period, has expired. Such counsel expresses no opinion,
however, as to any consent or approval which any Company Party may be
required to obtain as a result of the involvement of the CMC or any of
its subsidiaries in the transactions contemplated by this Agreement
because of CMC's or any of its subsidiaries' legal or
A-36
<PAGE>
regulatory status or because of any other facts specifically
pertaining to CMC or any of its subsidiaries.
(e) No Material Adverse Change. Whether or not any event or change
is reflected in the Company Bring Down Certificate, since September 30,
1994, there shall have been no material adverse change, and no event that
could reasonably be expected to result in a material adverse change, to
the business, properties, assets, results of operations, or financial
condition of MFSC or of the Processing Entities taken as a whole;
provided, however that "material adverse change" for this purpose shall
not include (i) any adverse change resulting from economic or market
conditions generally affecting businesses engaged in the same or
substantially similar activities as the Processing Entities or (ii) any
adverse change resulting directly from any action taken by CMC or any
subsidiary of CMC except an action specifically permitted or contemplated
by this Agreement (including the Bank Merger).
(f) Dissenters' Rights. Dissenters' Shares shall not constitute
more than 5% of the aggregate number of outstanding shares of Company
Common Stock.
(g) Other Documents. Each of the other Documents (other than the
Services Agreement) shall have been executed substantially in the forms
attached as Exhibits hereto or to the Contribution Agreement or, if not
included as Exhibits, in the form mutually agreed to as the parties
thereto and CMC, as the case may be, by the applicable parties thereto
(other than CMC and its affiliates) and shall have become effective in
accordance with its terms. The Company shall have delivered to CMC true,
correct and complete copies of each Document to which the CMC is not a
party.
(h) Tax Opinion. CMC shall have received an opinion, based on the
representation letters to be delivered pursuant to Section 4.4(c), of
O'Melveny & Myers, counsel to CMC, to the effect that the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that CMC and the Company will
each be a party to that reorganization within the meaning of Section
368(b) of the Code.
(i) Amendments to SEC Documents. Since the effective date of the
Form S-4 or the Proxy Statement, as applicable, no event with respect to
the Company, any subsidiary of the Company or any security holder of the
Company has occurred which should have been set forth in an amendment to
the Form S-4 or a supplement to the Proxy Statement which has not been
set forth in such an amendment or supplement.
(j) Rule 145 Letters. The Company shall have delivered letters
regarding Rule 145 of the Securities Act, substantially in the form of
Exhibit VII hereto, executed by each affiliate of the Company who will
acquire shares of CMC Common Stock in connection with the Merger.
(k) Anti-Virus Software. MFSC shall have installed anti-virus
computer software satisfactory to CMC in its reasonable discretion.
(l) Compliance with Securities Settlement Regulatory Changes.
(i) The Asset Management System shall comply with material
regulatory requirements.
(ii) If the Closing Date occurs before June 1, 1995, software
modifications required to comply with "T+3" ("T+3 Modifications")
shall have been completed in all material respects and shall have been
operated in a testing environment reasonably satisfactory to CMC.
(iii) If the Closing Date occurs on or after June 1, 1995, the
T+3 Modifications shall have been implemented in production and
operating successfully.
(m) Conversion of Asset Management System. The Asset Management
System shall have been modified to operate in a multi-bank environment to
the reasonable satisfaction of CMC, subject only to such "work-arounds"
as CMC may approve in its reasonable discretion.
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<PAGE>
SECTION 6.3. Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the following
conditions, unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of CMC set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of CMC set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date, except as otherwise contemplated by this
Agreement, and the Company shall have received a certificate signed on
behalf of CMC by the chief executive officer and the chief financial
officer of CMC to such effect. CMC shall have delivered to the Company a
certificate (the "CMC Bring Down Certificate"), dated as of the Closing
Date and reasonably satisfactory in form to the Company, that sets forth
each event that has occurred and each condition that exists that (i) had
not occurred or was not in existence as of the date of this Agreement and
(ii) if it had occurred or was in existence as of the date of this
Agreement would be required to be disclosed pursuant to Section 3.2(f),
(g) or (i).
(b) Performance of Obligations of CMC. CMC shall have performed in
all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of CMC by the chief
executive officer and the chief financial officer of CMC to such effect.
(c) Private Letter Ruling. The Service shall have issued and not
revoked the Private Letter Ruling reasonably satisfactory in form and
substance to the Company.
(d) Opinion of CMC's Counsel. The Company shall have received an
opinion dated the Closing Date of O'Melveny & Myers, counsel to CMC,
and/or in-house Counsel of CMC, satisfactory to counsel to the Company to
the effect that:
(i) CMC is a corporation validly existing and in good standing
under the laws of Delaware;
(ii) CMC has the requisite power and authority to execute this
Agreement and to consummate the transactions contemplated hereby; the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been duly authorized by all
necessary corporate action on the part of CMC and, if required, its
stockholders; and this Agreement has been duly executed and delivered
by CMC and constitutes a valid and binding obligation of CMC
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, receivership or other similar laws affecting
the enforcement of creditors' rights generally and subject, as to
enforceability, to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law;
(iii) the execution, delivery and performance of this Agreement,
the Tax Allocation Agreement and the Post Closing Covenants Agreement
by CMC will not (x) violate any Federal law or any law of the State of
Delaware or (y) conflict with any provision of the certificate of
incorporation or by-laws of CMC. Such counsel expresses no opinion,
however, as to any violation of any law or regulation which may have
become applicable to CMC as a result of the involvement of the
Company, New Holdings and any subsidiary of either in the transactions
contemplated by this Agreement because of the Company's legal or
regulatory status or because of any other facts specifically
pertaining to the Company or any of its subsidiaries; and
(iv) any consent, approval, order or authorization of, any
registration, declaration or filing with, and any waiting period
imposed by, any governmental authority under Federal law or the law of
the State of Delaware, which is required by or with respect to CMC in
connection with the execution and delivery of this Agreement by CMC or
the consummation of the transactions contemplated hereby has been
obtained or made or, in the case of any such waiting period, has
expired. Such counsel expresses no opinion, however, as to any consent
or approval which CMC may be required to obtain as a result of the
involvement of the Company, New Holdings and any subsidiary in the
transactions contemplated by this Agreement because of the Company's,
New Holdings' or any
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<PAGE>
subsidiary's legal or regulatory status or because of any other facts
specifically pertaining to the Company or any of its subsidiaries.
(e) No Material Adverse Change. Whether or not any event or change
is reflected in the CMC Bring Down Certificate, since September 30, 1994,
there shall have been no material adverse change, and no event that could
reasonably be expected to result in a material adverse change, to the
business, properties, assets, results of operations or financial
condition of CMC and its subsidiaries taken as a whole, provided,
however, that "material adverse change" for this purpose shall not
include (i) any adverse change resulting from economic or market
conditions generally affecting businesses engaged in the same or
substantially similar activities as CMC and its subsidiaries or (ii) any
adverse change resulting directly from any action taken by the Company or
any subsidiary of the Company except an action specifically permitted or
contemplated by this Agreement (including the Bank Merger).
(f) Tax Opinion. The Company shall have received an opinion, based
on the representation letters to be delivered pursuant to Section 4.4(c),
of Cravath, Swaine & Moore, counsel to the Company, to the effect that
the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
CMC and the Company will each be a party to that reorganization within
the meaning of Section 368(b) of the Code.
(g) Amendments to SEC Documents. Since the effective date of the
Form S-4 or the Proxy Statement, as applicable, no event with respect to
CMC, any subsidiary of CMC or any security holder of CMC has occurred
which should have been set forth in an amendment to the Form S-4 or a
supplement to the Proxy Statement which has not been set forth in such an
amendment or supplement.
(h) Other Documents. Each of the other Documents (other than the
Services Agreement) shall have been executed substantially in the forms
attached as Exhibits hereto or to the Contribution Agreement or, if not
included as Exhibits, in the form mutually agreed to by the parties
thereto and CMC, as the case may be, by the applicable parties thereto
(other than the Company and its affiliates) and shall have become
effective in accordance with its terms.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of CMC and the Company; or
(b) by either CMC or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting or any
adjournment thereof, any required approval of the stockholders of the
Company shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
the date one year following the date of this Agreement, unless the
failure to consummate the Merger is the result of a wilful and
material breach of this Agreement by the party seeking to terminate
this Agreement; provided, however, that the passage of such period
shall be tolled for any part thereof (but in no event for more than an
additional 90 days) during which any party shall be subject to a
nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or
holding of the Stockholders Meeting; or
(iii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable.
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<PAGE>
SECTION 7.2. Effect of Termination.
(a) In the event of termination of this Agreement by either the
Company or CMC as provided in Section 7.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on
the part of CMC or the Company, other than the provisions of Section
3.1(r), Section 3.2(l), the last two sentences of Section 5.4, Section
5.10, this Section 7.2 and Article VIII and except to the extent that
such termination results from the wilful and material breach by a party
of any of its representations, warranties, covenants or agreements set
forth in this Agreement, the Distribution Agreement, the Contribution
Agreement or any agreement contemplated hereby or thereby.
(b) If the transactions contemplated by this Agreement are
terminated as provided herein:
(i) CMC shall return all documents and other material received
from the Company or its representatives relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof, to the Company; and
(ii) all confidential information received by CMC with respect to
the businesses of the Company shall be treated in accordance with the
Confidentiality Agreement which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) CMC has incurred substantial expenses in connection with its
examination of the Company and negotiation of this Agreement and shall
incur substantial expense in connection with its actions to implement the
Merger. If this Agreement is terminated for any reason other than by
reason of the failure to satisfy the conditions set forth in Sections
6.1(b) or (c); or 6.3(a), (b), (d) (but only if Cravath, Swaine & Moore
is prepared to deliver the opinion referred to in 6.3(f) based on
representation letters delivered to it in good faith), (e), (g) or (h);
or due to a permanent injunction issued at the instance of the United
States Department of Justice; or otherwise due to any default on the part
of CMC or failure of CMC to obtain all requisite approvals, the Company
shall pay to CMC, as liquidated damages, and not a penalty, the sum of
(i) $5,000,000, if such termination occurs on or before the date that
proxy statements relating to the Merger are first mailed to the Company's
stockholders and (ii) $7,500,000, if the termination occurs after the
date of such mailing.
SECTION 7.3. Amendment. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; provided,
however, that after any such approval, there shall be made no amendment that
by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 7.4. Extension; Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.3, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.1, an amendment
of this Agreement pursuant to Section 7.3 or an extension or waiver pursuant
to Section 7.4 shall, in order to be effective, require in the case of CMC or
the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors.
A-40
<PAGE>
ARTICLE VIII
General Provisions
SECTION 8.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 8.2. Notices. Any notice, request, instruction or other
document to be given hereunder by any party to any other party shall be in
writing and shall be deemed to have been duly given (a) on the first Business
Day occurring on or after the date of transmission if transmitted by facsimile
(upon confirmation of receipt by journal or report generated by the facsimile
machine of the party giving such notice), (b) on the first Business Day
occurring on or after the date of delivery if delivered personally or (c) on
the first Business Day following the date of dispatch if dispatched by Federal
Express or other next-day courier service. All notices hereunder shall be
given as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
(a) if to CMC, to
The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022-4611
Attention: William H. Satchell
(b) if to the Company, to
U. S. Trust Corporation
114 West 47th Street
New York, NY 10036
Attention: Maureen Scannell Bateman
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: B. Robbins Kiessling
SECTION 8.3. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person;
(b) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(c) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its
Board of Directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first person.
A-41
<PAGE>
SECTION 8.4. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation".
SECTION 8.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.6. Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the other Documents and the agreements referred to herein and
therein or required to be delivered in connection with the transactions
contemplated by the Documents and certain side letters of date even herewith
exchanged by the parties in connection with the execution of this Agreement
constitute the entire agreement, and supersede all prior agreements (other
than the Confidentiality Agreement) and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement, and
except for the provisions of Article II, Section 5.7, Section 5.8 and Section
5.9, this Agreement is not intended to confer upon any person other than the
parties any rights or remedies.
SECTION 8.7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York and, insofar
as the Merger is concerned, the Delaware General Corporation Law, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
SECTION 8.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 8.9. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of New York in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from
any such court and (c) agrees that it will not bring any action relating to
this Agreement or any of the transactions contemplated by this Agreement in
any court other than a Federal court sitting in the State of New York.
[Remainder Of Page Intentionally Left Blank.]
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<PAGE>
IN WITNESS WHEREOF, CMC and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
THE CHASE MANHATTAN CORPORATION
By: /s/ DEBORAH L. DUNCAN
-------------------------------------------
Name: Deborah L. Duncan
Title: Executive Vice President and
Treasurer
ATTEST:
/s/ RONALD C. MAYER
-------------------------------------------
Name: Ronald C. Mayer
Title: Secretary
U.S. TRUST CORPORATION
By: /s/ H. MARSHALL SCHWARZ
-------------------------------------------
Name: H. Marshall Schwarz
Title: Chairman and CEO
ATTEST:
/s/ JEFFREY S. MAURER
-------------------------------------------
Name: Jeffrey S. Maurer
Title: President
A-43
<PAGE>
APPENDIX B
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
AGREEMENT AND PLAN OF DISTRIBUTION
Dated as of , 1995
Among
U.S. TRUST CORPORATION
UNITED STATES TRUST COMPANY OF NEW YORK
NEW USTC HOLDINGS CORPORATION
and
NEW U.S. TRUST COMPANY OF NEW YORK
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
RECITALS............................................................................. B-1
ARTICLE I
Definitions
SECTION 1.1.. Definitions........................................................... B-1
ARTICLE II
Capitalization of New Trustco;
Recapitalization of New Holdings; Mechanics of Spin-Offs
SECTION 2.1 Capitalization of New Trustco......................................... B-2
SECTION 2.2 Recapitalization of New Holdings...................................... B-2
SECTION 2.3 Mechanics of Spin-Offs................................................ B-3
SECTION 2.4 Timing of Spin-Offs................................................... B-3
ARTICLE III
Ancillary Agreements
SECTION 3.1 Tax Matters........................................................... B-3
SECTION 3.2 Services Agreement.................................................... B-3
SECTION 3.3 Post Closing Covenants Agreement...................................... B-3
ARTICLE IV
Certain Transactions
SECTION 4.1 Transactions Relating to New Trustco Spin-Off......................... B-3
SECTION 4.2 Transactions Relating to New Holdings Spin-Off........................ B-4
SECTION 4.3 Certain Funds......................................................... B-5
SECTION 4.4 Assumed Liabilities................................................... B-5
SECTION 4.5 Further Assurances.................................................... B-5
SECTION 4.6 Benefit Plans......................................................... B-6
SECTION 4.7 Indebtedness.......................................................... B-6
SECTION 4.8 Certain Custody Arrangements.......................................... B-6
ARTICLE V
Representations and Warranties
SECTION 5.1 Representations and Warranties of the Company......................... B-6
SECTION 5.2 Representations and Warranties of New Holdings........................ B-7
ARTICLE VI
Certain Covenants
SECTION 6.1 Certain Understandings................................................ B-7
B-i
<PAGE>
Page
----
ARTICLE VII
Conditions
SECTION 7.1 Recapitalization of New Holdings...................................... B-8
SECTION 7.2 Tax Allocation Agreement.............................................. B-8
SECTION 7.3 Certain Transactions.................................................. B-8
SECTION 7.4 Conditions to Merger Satisfied........................................ B-8
SECTION 7.5 Stockholder Approval.................................................. B-8
SECTION 7.6 Registration of New Holdings Shares................................... B-8
SECTION 7.7 Quotation on NASDAQ/NMS............................................... B-8
SECTION 7.8 Regulatory Approvals.................................................. B-8
SECTION 7.9 No Injunctions or Restraints.......................................... B-8
SECTION 7.10 Post Closing Covenants Agreement...................................... B-8
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1 Termination........................................................... B-8
SECTION 8.2 Amendments and Waivers................................................ B-9
ARTICLE IX
General Provisions
SECTION 9.1 Counterparts.......................................................... B-9
SECTION 9.2 Governing Law......................................................... B-9
SECTION 9.3 Notices............................................................... B-9
SECTION 9.4 Captions.............................................................. B-9
SECTION 9.5 Assignment............................................................ B-10
SECTION 9.6 Survival of Representations........................................... B-10
SECTION 9.7 Interpretation........................................................ B-10
</TABLE>
EXHIBITS
Exhibit A Assumption Agreement [Omitted]
SCHEDULES
Schedule 4.2(b) Company Assets Assigned to New Holdings [Omitted]
B-ii
<PAGE>
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of , 1995 (this
"Distribution Agreement"), among U.S. TRUST CORPORATION, a New York
corporation (the "Company"), UNITED STATES TRUST COMPANY OF NEW YORK, a New
York State chartered bank and trust company and a wholly owned subsidiary of
the Company (including any successor by merger, "USTNY"), NEW USTC HOLDINGS
CORPORATION, a New York corporation and a wholly owned subsidiary of the
Company ("New Holdings"), and NEW U.S. TRUST COMPANY OF NEW YORK, a New York
State chartered bank and trust company and a wholly owned subsidiary of USTNY
("New Trustco").
RECITALS
WHEREAS, the Company and The Chase Manhattan Corporation, a Delaware
corporation ("CMC") have entered into an Agreement and Plan of Merger, dated
as of November 18, 1994 (the "Merger Agreement"), providing for the Merger (as
defined in the Merger Agreement) of the Company with and into CMC, with CMC as
the surviving corporation;
WHEREAS, immediately prior to the Effective Time (as defined in Section
1.3 of the Merger Agreement), subject to the satisfaction or waiver of the
conditions set forth in Article VII of this Distribution Agreement, (i) the
Board of Trustees of USTNY expects to distribute as a dividend to the Company
all of the outstanding shares of Common Stock (the "New Trustco Common
Stock"), par value $1.00 per share, of New Trustco (the "New Trustco
Spin-off ") and (ii) the Board of Directors of the Company expects, following
the contribution of the New Trustco Common Stock and certain other assets by
the Company to New Holdings, to distribute as a dividend to the holders of
Common Stock of the Company, par value $1.00 per share (the "Company Common
Stock"), on a pro rata basis, all of the then outstanding shares of Common
Stock (the "New Holdings Common Stock"), par value $1.00 per share, of New
Holdings (the "New Holdings Spin-Off" and, together with the New Trustco
Spin-Off, the "Spin-Offs" ); and
WHEREAS, the purpose of the Spin-Offs is to make possible the Merger by
divesting the Company of all businesses and operations other than the Retained
Business (as defined in the Merger Agreement). This Distribution Agreement
sets forth or provides for certain agreements among the Company, USTNY, New
Holdings and New Trustco in consideration of the separation of their
ownership.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. As used in this Distribution Agreement, the
following terms shall have the following respective meanings (capitalized
terms used but not defined herein shall have the respective meanings ascribed
thereto in the Contribution Agreement):
"Contribution Agreement" shall mean the Contribution and Assumption
Agreement dated as of the date hereof between USTNY and New Trustco, in
the form attached as Exhibit II to the Merger Agreement.
"Fair Market Value" shall mean, with respect to any asset or
property, the sale value that would be obtained in an arms length
transaction between an informed and willing seller under no compulsion to
sell and an informed and willing buyer under no compulsion to buy.
"Limit Amount" shall mean the sum of (i) the amount described in
clause (w) of Section 4.3, plus (ii) the amount described in clause
(x)(i) of Section 4.3, plus (iii) the amount described in clause (y) of
Section 4.3.
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"MFSC Retained Liabilities" shall mean the following:
(i) all liabilities to trade creditors and accounts payable of
the Processing Business, but only to the extent fully liquidated and
reflected on the Final MFSC Balance Sheet;
(ii) all duties, obligations and liabilities under Customer
Agreements relating to the Processing Business, but not any liability
for defaults or damages arising before the Closing Date;
(iii) all duties, obligations and liabilities under Contracts
relating to the Processing Business, but not any liability for
defaults or damages arising before the Closing Date;
(iv) all intercompany obligations of MFSC owing to the Company or
USTNY;
(v) all obligations and duties as a lessee under leases,
including the lease at 73 Tremont Street, Boston, MA, between MFSC, as
Lessee, and Tremont Land Holding Company, Inc., as Lessor (the
"Tremont Lease"); and
(vi) to the extent not included in (i) through (v) above, any
liabilities to the extent reflected on the Final MFSC Balance Sheet.
Notwithstanding anything to the contrary in this Agreement, MFSC
Retained Liabilities shall not include any liability for Taxes, except as
provided in the Tax Allocation Agreement.
"Time of Distribution" shall mean the time as of which the Spin-Offs
are effective.
"Transfer Agent" shall mean USTNY, the transfer agent for the
Company Common Stock.
"UST-WY Retained Liabilities" shall mean the following:
(i) all liabilities to trade creditors and accounts payable of
the Processing Business, but only to the extent fully liquidated and
reflected on the Final UST-WY Balance Sheet;
(ii) all duties, obligations and liabilities under Customer
Agreements relating to the Processing Business, but not any liability
for defaults or damages arising before the Closing Date;
(iii) all duties, obligations and liabilities under Contracts
relating to the Processing Business, but not any liability for
defaults or damages arising before the Closing Date;
(iv) all intercompany obligations of UST-WY owing to the Company
or USTNY; and
(v) to the extent not included in (i) through (iv) above, any
liabilities to the extent reflected on the Final UST-WY Balance Sheet.
Notwithstanding anything to the contrary in this Agreement, UST-WY
Retained Liabilities shall not include any liability for Taxes, except as
provided in the Tax Allocation Agreement.
ARTICLE II
Capitalization of New Trustco; Recapitalization
of New Holdings; Mechanics of Spin-Offs
SECTION 2.1. Capitalization of New Trustco. The authorized capital
stock of New Trustco currently consists of 100 shares of New Trustco Common
Stock, all of which are issued and outstanding and owned beneficially and of
record by USTNY.
SECTION 2.2. Recapitalization of New Holdings. (a) The authorized
capital stock of New Holdings currently consists of 100 shares of Common
Stock, par value $1.00 per share (the "Existing New Holdings Common Stock"),
all of which are issued and outstanding and owned beneficially and of record
by the Company.
(b) Immediately prior to the Time of Distribution, the Company shall (i)
appropriately cause New Holdings to amend and restate its Certificate of
Incorporation to, among other things, provide (x) for an
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increase in the number of authorized shares of common stock of New Holdings
from the number of shares of Existing New Holdings Common Stock authorized
prior to such amendment and restatement and (y) that the authorized common
stock of New Holdings shall consist of New Holdings Common Stock and (ii)
exchange the 100 shares of Existing New Holdings Common Stock owned by the
Company for a total number of shares of New Holdings Common Stock equal to the
total number of shares of Company Common Stock outstanding as of the Record
Date (as defined below) for the Distribution.
SECTION 2.3. Mechanics of Spin-Offs. The Spin-Offs shall be effected by
(a)(i) the contribution of certain assets by USTNY to New Trustco, and the
assumption of certain liabilities of USTNY by New Trustco, in each case as
provided in the Contribution Agreement and (ii) the declaration and payment of
a dividend by USTNY of all the outstanding capital stock of New Trustco to the
Company, as provided for in this Distribution Agreement, followed by (b)(i)
the contribution of certain assets (including, without limitation, all of the
capital stock of New Trustco and certain other subsidiaries of the Company) by
the Company to New Holdings, and the assumption of certain liabilities of the
Company by New Holdings, in each case as provided for in this Distribution
Agreement and (ii) the distribution to each holder of record of Company Common
Stock, as of the close of the stock transfer books on the record date
designated by or pursuant to the authorization of the Board of Directors of
the Company (the "Record Date"), of certificates representing one share of New
Holdings Common Stock multiplied by the number of shares of Company Common
Stock held by such holder.
SECTION 2.4. Timing of Spin-Offs. Immediately prior to the Effective
Time subject to the satisfaction or waiver of the conditions set forth in
Article VII, (a) the Board of Trustees of USTNY shall formally declare the New
Trustco Spin-Off and pay it by delivery of certificates for New Trustco Common
Stock to the Company and (b) the Board of Directors of the Company shall
formally declare the New Holdings Spin-Off and pay it by delivery of
certificates for New Holdings Common Stock to the Transfer Agent for delivery
to the holders entitled thereto. The Spin-Offs shall be deemed to be effective
upon notification by the Company to the Transfer Agent that the Spin-Offs have
been declared and that the Transfer Agent is authorized to proceed with the
distribution of New Holdings Common Stock, which notification the Company
agrees to deliver promptly following such declarations.
ARTICLE III
Ancillary Agreements
SECTION 3.1. Tax Matters. Prior to the Time of Distribution, the
parties hereto shall execute and deliver an agreement relating to past and
future tax sharing and certain issues associated therewith in the form
attached to the Merger Agreement as Exhibit V (the "Tax Allocation
Agreement").
SECTION 3.2. Services Agreement. Prior to the Time of Distribution,
USTNY and New Trustco shall execute and deliver the Services Agreement (as
defined in the Contribution Agreement).
SECTION 3.3. Post Closing Covenants Agreement. Prior to the Time of
Distribution, the parties hereto shall execute and deliver the Post Closing
Covenants Agreement in the form attached to the Merger Agreement as Exhibit VI
(the "Post Closing Covenants Agreement").
ARTICLE IV
Certain Transactions
SECTION 4.1. Transactions Relating to New Trustco Spin-Off. Immediately
prior to the Time of Distribution, subject to the satisfaction or waiver of
the conditions set forth in Article VII:
(a) USTNY and New Trustco shall execute and deliver the Contribution
Agreement; and
(b) Pursuant to the terms of the Contribution Agreement, USTNY shall
assign, transfer, convey and contribute to New Trustco the assets
required therein to be assigned, transferred, conveyed and
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contributed and, in connection therewith, New Trustco shall assume the
liabilities required therein to be assumed.
SECTION 4.2. Transactions Relating to New Holdings
Spin-Off. Immediately prior to the Time of Distribution and immediately after
(x) the transfers described in Section 4.1 and (y) the New Trustco Spin-Off,
as provided in Section 2.3, the Company shall, upon the terms and conditions
of this Distribution Agreement, assign, transfer, convey and contribute (or
cause the assignment, transfer, conveyance or contribution of) the following
(the "Acquired Assets") to New Holdings:
(a) all of the issued and outstanding capital stock of the following
subsidiaries:
(i) New Trustco;
(ii) U.S. Trust Co. of Florida Savings Bank, a Florida banking
corporation;
(iii) U.S.T.L.P.O. Corp., a Delaware corporation;
(iv) Campbell, Cowperthwait & Company, a Delaware Corporation;
(v) U.S. Trust Co. of California, N.A., a national banking
association;
(vi) U.S. Trust Co. of New Jersey, a New Jersey banking
corporation;
(vii) U.S. Trust Company of Connecticut, a Connecticut banking
corporation;
(viii) UST Financial Services Corp., a New York corporation;
(ix) CTMC Holding Company, an Oregon corporation;
(x) U.S. Trust Company Limited, a New York banking corporation;
(xi) Technologies Holding Corporation, a Delaware corporation;
and
(xii) UST Risk Management Services Inc., a New York corporation;
(b)(i) subject to the provisions of Section 4.3, all monies, cash on
hand, deposits with banks, loans, advances, investments (other than
equity investments described in the parenthetical in Section 4.2(b)(iii))
and securities (other than securities representing equity investments
described in the parenthetical in Section 4.2(b)(iii)) owned by, or held
for the account of, the Company;
(ii) all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses with
respect thereto, and all rights to the name "U.S. Trust Corporation" or
any other name used or employed by the Company or any of its Affiliates
(other than Mutual Funds Service Company, a Delaware corporation and a
wholly owned subsidiary of the Company ("MFSC"));
(iii) all equity or debt investments of the Company in any
corporation, joint venture, partnership, trust or other business
association (other than the Company's equity investments in MFSC, USTNY
and U.S. Trust Company of Wyoming, a Wyoming corporation and wholly owned
subsidiary of the Company ("UST-WY"));
(iv) all records prepared in connection with the Merger contemplated
by the Merger Agreement or the sale of the Retained Business, including
bids received from other persons and analyses relating to the Processing
Business and all books of account, general, financial, accounting and
personnel records, files, invoices and similar data owned by the Company
on the Closing Date;
(v) all rights relating to the Assumed Liabilities; and
(vi) all assets identified in Schedule 4.2(b);
(c) (i) all monies, cash on hand, deposits with banks, loans,
advances, investments and securities owned by, or held for the account
of, MFSC; and
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(ii) all equity or debt investments of MFSC (other than MFSC's
equity interest in Mutual Funds Service Company (Canada) Ltd.) in any
corporation, joint venture, partnership, trust or other business
association;
(d) (i) all monies, cash on hand, deposits with banks, loans,
advances, investments and securities owned by, or held for the account
of, UST-WY;
(ii) all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses owned
by UST-WY and all rights with respect to the name "U.S. Trust Co. of
Wyoming," or any similar name used or employed by UST-WY or any of its
Affiliates; and
(iii) all equity or debt investments of UST-WY in any corporation,
joint venture, partnership, trust or other business association.
Anything herein to the contrary notwithstanding, Acquired Assets do not
include the business, properties, assets, goodwill and rights of the Company
of whatever kind and nature, real or personal, tangible or intangible that are
primarily used or held for use in the Processing Business and the Related Back
Office on the Closing Date (other than any names that are Acquired Assets, and
any similar names).
SECTION 4.3. Certain Funds. Notwithstanding the foregoing, the Company
shall retain, and not distribute or contribute to New Holdings pursuant to
Section 4.2, cash funds equal to the Retention Amount. The "Retention Amount"
shall mean the sum of (w) the aggregate amount, determined as of the close of
business on the day immediately prior to the Closing Date, of the cash
payments required to be made with respect to all stock options granted under
the 1989 Stock Compensation Plan of U.S. Trust Corporation and the U.S. Trust
Corporation Stock Option Plan for Non-Employee Directors that have not expired
or that have not been exercised or cancelled prior to the Effective Time (as
defined in the Merger Agreement), determined in accordance with the relevant
provisions of each such plan on the basis of a "Change in Control" having
occurred thereunder with respect to such stock options as a result of the
Merger; plus (x) the product of (i) the aggregate amount, determined as of the
close of business on the day immediately prior to the Closing Date, of the
cash payments required to be made with respect to all outstanding account
balances under the Annual Incentive Plan of U.S. Trust Corporation, determined
in accordance with the relevant provisions of such plan (including any
amendment thereof made in accordance with the last sentence of Section 4.1(h)
of the Merger Agreement) on the basis of a "Change in Control" having occurred
thereunder as a result of the Merger, multiplied by (ii) 0.68875; plus (y) the
aggregate amount, determined as of the close of business on the day
immediately prior to the Closing Date, required to pay any employer payroll
taxes, including the employer's share of FICA and FUTA, due on amounts payable
under the plans referred to in clauses (w) and (x); minus (z) the sum of (i)
$5.5 million plus (ii) an amount equal to the MFSC Equity Amount plus (iii) an
amount equal to the UST-WY Equity Amount.
At all times at and after the Closing, the Company will retain and be
solely responsible for, and the Company hereby agrees to pay, perform and
discharge when due, and indemnify New Holdings and hold New Holdings harmless
from and against, all liabilities and obligations, but not in excess of the
Limit Amount, for amounts payable under each of the plans referred to in
clauses (w) and (x)(i) above, and all liabilities and obligations to pay all
employer payroll taxes referred to in clause (y) above.
SECTION 4.4. Assumed Liabilities. The parties agree that at or prior to
the Time of Distribution, New Holdings shall execute an assumption agreement
substantially in the form attached hereto as Exhibit A, pursuant to which New
Holdings shall, except as otherwise provided in this Distribution Agreement,
the Merger Agreement, the Contribution Agreement or the Tax Allocation
Agreement, assume, or agree to be responsible for, all liabilities of the
Company, UST-WY and MFSC other than the MFSC Retained Liabilities and the
UST-WY Retained Liabilities arising before the Time of Distribution and the
liabilities and obligations referred to in the second paragraph of Section 4.3
(the "Assumed Liabilities") .
SECTION 4.5. Further Assurances. (a) The parties agree that if after
the Time of Distribution, either party holds assets which by the terms hereof
or of the Contribution Agreement or the Merger Agreement were intended to be
assigned and transferred to, or retained by, the other party, such party shall
promptly assign and transfer or cause to be assigned and transferred such
assets to the other party.
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SECTION 4.6. Benefit Plans. Prior to the Time of Distribution, the
Company shall transfer each Benefit Plan (as defined in the Merger Agreement)
maintained by it other than any Retained Plan (as defined in the Merger
Agreement) to New Holdings, and New Holdings agrees to assume and become
solely responsible for all liabilities and obligations of the Company under
the Benefit Plans so transferred.
SECTION 4.7. Indebtedness. Prior to the Time of Distribution, the
Company shall, and shall cause its subsidiaries to, redeem or defease the
indebtedness set forth in Schedule 4.2(c) to the Merger Agreement.
SECTION 4.8. Certain Custody Arrangements. Prior to the Time of
Distribution, the Company shall cause its subsidiary, U.S. Trust of the
Pacific Northwest ("Pacific Northwest") to enter a sub-custody agreement (the
"Sub-custody Agreement") with USTNY. The Sub-custody Agreement, in form and
substance mutually satisfactory to the parties thereto, shall provide, in
substance, (i) that USTNY shall furnish sub-custody services with respect to
all assets of Standard Insurance Company of Oregon required by law to be
maintained with a custodian domiciled in the State of Oregon; (ii) for the
pass-through to USTNY of all revenues received with respect to all such
custody services furnished to such Customer; (iii) for indemnification of
Pacific Northwest by USTNY against all losses, expenses, costs or liabilities
associated with or arising from such relationship, except those resulting from
its own gross negligence and (iv) in the event USTNY or its successor, or any
Affiliate, is at any time eligible to furnish sub-custody services directly to
such Customer, then at the request of USTNY or its successor or any Affiliate,
Pacific Northwest shall use its reasonable best efforts to obtain all
necessary consents to substitute USTNY, any successor, or Affiliate, as the
case may be, as trustee or custodian for such Customer.
ARTICLE V
Representations and Warranties
SECTION 5.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to New Holdings as follows:
(a) Organization, Standing and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of New York and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted.
(b) Authority. The Company has all requisite power and authority to
execute this Distribution Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Distribution
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of the
Company and by the stockholders of the Company. This Distribution
Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
(c) No Conflict. The execution, delivery and performance by the
Company of this Distribution Agreement will not contravene, violate,
result in a breach of or constitute a default under (i) any provision of
applicable law or of the certificate of incorporation or by-laws of the
Company or other charter or organizational documents, (ii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
the Company or any of its properties or assets, (iii) any Material
Contract (as defined in the Merger Agreement) to which the Company is a
party or by which the Company or any of its properties is bound or (iv)
any debt obligation fully defeased and discharged or fully defeased in
substance on or before the Time of Distribution.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity (as
defined in the Contribution Agreement) is required in connection with the
making or performance by the Company of this Distribution Agreement,
except (i) approval of the Board of Governors of the Federal Reserve
System, (ii) filings with or applications to (A) the FDIC (as defined in
the Merger Agreement) and (B) the Banking Department of the State of New
York, (iii) filing with the Securities and Exchange Commission ("SEC") of
(A) potentially, a registration
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statement on Form S-1 and (B) a Form 10 (as defined in the Merger
Agreement), (iv) filings with various state bank regulatory authorities
and (v) application for (A) designation of the New Holdings Common Stock
as national market system securities on the NASDAQ or (B) listing of the
New Holdings Common Stock on the New York Stock Exchange or the American
Stock Exchange.
SECTION 5.2. Representations and Warranties of New Holdings. New
Holdings hereby represents and warrants to the Company as follows:
(a) Organization, Standing and Power. New Holdings is a corporation
duly organized, validly existing and in good standing under the laws of
the State of New York and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted.
(b) Authority. New Holdings has all requisite power and authority
to execute this Distribution Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Distribution
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of New
Holdings and, to the extent required, by the stockholders of New
Holdings. This Distribution Agreement has been duly executed and
delivered by New Holdings and constitutes a legal, valid and binding
obligation of New Holdings enforceable against it in accordance with its
terms.
(c) No Conflict. The execution, delivery and performance by New
Holdings of this Distribution Agreement will not contravene, violate,
result in a breach of or constitute a default under (i) any provision of
applicable law or of the certificate of incorporation or by-laws of New
Holdings or other charter or organizational documents or (ii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to New Holdings or any of its properties or assets.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity (as
defined in the Contribution Agreement) is required in connection with the
making or performance by New Holding of this Distribution Agreement,
except (i) approval of the Board of Governors of the Federal Reserve
System, (ii) filings with or applications to (A) the FDIC (as defined in
the Merger Agreement and (B) the Banking Department of the State of New
York, (iii) filing with the SEC of (A) potentially, a registration
statement on Form S-1 and (B) a Form 10 (as defined in the Merger
Agreement), (iv) filings with various state bank regulatory authorities
and (v) application for (A) designation of the New Holdings Common Stock
as national market system securities on the NASDAQ, or (B) listing of the
New Holdings Common Stock on the New York Stock Exchange or the American
Stock Exchange.
ARTICLE VI
Certain Covenants
SECTION 6.1. Certain Understandings. New Holdings acknowledges that
neither the Company nor any other person has made any representation or
warranty, express or implied, as to the accuracy or completeness of any
information regarding the Acquired Assets or Assumed Liabilities not included
in this Distribution Agreement or the schedules hereto. New Holdings
acknowledges that it will acquire the Acquired Assets without any
representation or warranty as to merchantability or fitness for any particular
purpose, in an "as is" condition and on a "where is" basis.
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ARTICLE VII
Conditions
The obligations of the Company and New Holdings to consummate the
Spin-Offs shall be subject to the fulfillment of each of the following
conditions:
SECTION 7.1. Recapitalization of New Holdings. The recapitalization of
New Holdings in accordance with Section 2.2 hereof shall have been completed
substantially as described therein.
SECTION 7.2. Tax Allocation Agreement. The Tax Allocation Agreement
shall have been executed and delivered by each of the Company and New
Holdings.
SECTION 7.3. Certain Transactions. All of the transactions or
obligations contemplated by Sections 4.1 and 4.2 hereof to be consummated or
performed at or prior to the Time of Distribution shall have been successfully
consummated or so performed.
SECTION 7.4. Conditions to Merger Satisfied. Each condition to the
closing of the Merger set forth in Article VI of the Merger Agreement, other
than the condition to each party's obligations set forth in Section 6.1(g)
thereof as to the consummation of the transactions contemplated by this
Distribution Agreement, shall have been satisfied or waived.
SECTION 7.5. Stockholder Approval. This Distribution Agreement and the
New Holdings Spin-Off shall have been approved and adopted by the affirmative
vote of the holders of Company Common Stock entitled to cast at least 66 2/3%
of the total number of votes entitled to be cast.
SECTION 7.6. Registration of New Holdings Shares. Any registration
statement filed by New Holdings with the SEC pursuant to the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in connection with the issuance of New
Holdings Common Stock in the New Holdings Spin-Off shall have become effective
under the Securities Act or Exchange Act, as applicable, and shall not be the
subject of any stop order or proceeding by the SEC seeking a stop order.
SECTION 7.7. Quotation on NASDAQ/NMS. The shares of New Holdings Common
Stock to be issued in the New Holdings Spin-Off shall have been designated as
national market system securities on the interdealer quotation system by the
National Association of Securities Dealers, Inc. or listed on the New York or
American Stock Exchanges, subject to official notice of issuance.
SECTION 7.8. Regulatory Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any governmental authority necessary for the consummation
of the transactions contemplated by this Distribution Agreement shall have
been obtained or filed or shall have occurred.
SECTION 7.9. No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Spin-Offs shall be in effect (each party agreeing to
use all reasonable efforts to have any such order reversed or injunction
lifted).
SECTION 7.10. Post Closing Covenants Agreement. The Post Closing
Covenants Agreement shall have been executed and delivered by each of CMC, the
Company, USTNY, New Holdings and New Trustco.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1. Termination. Notwithstanding anything to the contrary in
this Distribution Agreement, this Distribution Agreement may be terminated and
the transactions contemplated hereby abandoned at any time prior to the
Closing by mutual written consent of the Company and New Holdings in the event
the Merger Agreement is terminated by any party thereto in accordance with the
terms thereof.
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SECTION 8.2. Amendments and Waivers. This Distribution Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto and consented to by CMC. By an instrument in writing, the
parties hereto may waive compliance by any other party with any term or
provision of this Distribution Agreement that such other party was or is
obligated to comply with or perform; provided that no such waiver by the
Company, USTNY, MFSC or UST-WY shall be effective unless consented to by CMC.
ARTICLE IX
General Provisions
SECTION 9.1. Counterparts. For the convenience of the parties hereto,
this Distribution Agreement may be executed in separate counterparts, each
such counterpart being deemed to be an original instrument, and which
counterparts shall together constitute the same agreement.
SECTION 9.2. Governing Law. This Distribution Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without reference to its conflicts of law principles.
SECTION 9.3. Notices. Any notice, request, instruction or other
document to be given hereunder by any party to any other party shall be in
writing and shall be deemed to have been duly given (i) on the first Business
Day occurring on or after the date of transmission if transmitted by facsimile
(upon confirmation of receipt by journal or report generated by the facsimile
machine of the party giving such notice), (ii) on the first Business Day
occurring on or after the date of delivery if delivered personally or (iii) on
the first Business Day following the date of dispatch if dispatched by Federal
Express or other next-day courier service. All notices hereunder shall be
given as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
If to the Company or USTNY:
c/o The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022
Attention: William H. Satchell
If to New Holdings or New Trustco:
c/o U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attention: Maureen Scannell Bateman
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: B. Robbins Kiessling
SECTION 9.4. Captions. All Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Distribution Agreement and shall not be deemed to limit or otherwise affect
any of the provisions hereof.
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SECTION 9.5. Assignment. Except as expressly provided herein, nothing
contained in this Distribution Agreement is intended to confer on any person
or entity other than the parties hereto and their respective successors and
permitted assigns any benefit, rights or remedies under or by reason of this
Distribution Agreement, except that the provisions of Sections 5.1 and 5.2
hereof shall inure to the benefit of the persons referred to therein.
SECTION 9.6. Survival of Representations. The representations and
warranties of New Holdings and New Trustco contained in this Agreement shall
survive the Closing and shall terminate at the close of business two years
following the Closing Date. The representations of the Company and USTNY
contained in this Agreement shall terminate on the Closing Date.
SECTION 9.7. Interpretation. When a reference is made in this
Distribution Agreement to a Section, Schedule or Exhibit, such reference shall
be to a Section, Schedule or Exhibit of this Distribution Agreement unless
otherwise indicated. The table of contents and headings contained in this
Distribution Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Distribution Agreement. Whenever
the words "included", "includes" or "including" are used in this Distribution
Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Distribution Agreement
shall have the meanings determined by generally accepted accounting
principles.
[Remainder Of Page Intentionally Left Blank.]
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IN WITNESS WHEREOF, this Distribution Agreement has been duly executed
and delivered by the duly authorized officers of the parties hereto as of the
date first written above.
U.S. TRUST CORPORATION
By:
------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK
By:
------------------------------------
Name:
Title:
NEW USTC HOLDINGS CORPORATION
By:
------------------------------------
Name:
Title:
NEW U.S. TRUST COMPANY OF NEW YORK
By:
------------------------------------
Name:
Title:
MUTUAL FUNDS SERVICE COMPANY, for
purposes of Section 4.2(c) only,
By:
------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF WYOMING, for
purposes of Section 4.2(d) only,
By:
------------------------------------
Name:
Title:
B-11
<PAGE>
APPENDIX C
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CONTRIBUTION AND ASSUMPTION AGREEMENT
Dated as of , 1995
Between
UNITED STATES TRUST
COMPANY OF NEW YORK
and
NEW U.S. TRUST COMPANY OF NEW YORK
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
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<S> <C>
RECITALS............................................................................. C-1
ARTICLE I
Definitions
SECTION 1.1. Definitions.......................................................... C-1
ARTICLE II
Contribution of Assets and Assumption of Liabilities
SECTION 2.1. Contribution......................................................... C-10
SECTION 2.2. Acquired Assets and Retained Assets.................................. C-10
SECTION 2.3. Assumption of Certain Liabilities.................................... C-13
SECTION 2.4. Benefit Plans; Employee Matters...................................... C-14
SECTION 2.5. Capital Notes........................................................ C-14
SECTION 2.6. Delayed Assets and Liabilities....................................... C-15
SECTION 2.7. Estimated and Final Balance Sheets; Eligible Investment Retention.... C-15
ARTICLE III
The Closing
SECTION 3.1. Closing Date......................................................... C-16
SECTION 3.2. Transactions To Be Effected at the Closing........................... C-16
ARTICLE IV
Representations and Warranties
SECTION 4.1. Representations and Warranties of USTNY.............................. C-17
SECTION 4.2. Representations and Warranties of New Trustco........................ C-17
ARTICLE V
Covenants
SECTION 5.1. Items in Transit..................................................... C-18
SECTION 5.2. Further Assurances................................................... C-18
SECTION 5.3. Certain Understandings............................................... C-19
SECTION 5.4. Use of Name.......................................................... C-19
SECTION 5.5. Transferred Processing Receivables................................... C-19
ARTICLE VI
Conditions Precedent
SECTION 6.1. Conditions to Each Party's Obligation................................ C-19
SECTION 6.2. Conditions to Obligations of New Trustco............................. C-20
SECTION 6.3. Conditions to the Obligation of USTNY................................ C-20
C-i
<PAGE>
Page
----
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.1. Termination.......................................................... C-21
SECTION 7.2. Amendments and Waivers............................................... C-21
ARTICLE VIII
General Provisions
SECTION 8.1. Notices.............................................................. C-21
SECTION 8.2. Interpretation....................................................... C-22
SECTION 8.3. Survival of Representations.......................................... C-22
SECTION 8.4. Severability......................................................... C-22
SECTION 8.5. Counterparts......................................................... C-22
SECTION 8.6. Entire Agreement; Third Party Beneficiaries.......................... C-22
SECTION 8.7. Governing Law........................................................ C-22
SECTION 8.8. Consent to Jurisdiction; Waiver of Jury Trial........................ C-22
SECTION 8.9. Certain Disputes..................................................... C-23
SECTION 8.10. Assignment........................................................... C-24
</TABLE>
C-ii
<PAGE>
<TABLE>
EXHIBITS [Omitted]
<S> <C>
Exhibit A Assumption Agreement
Exhibit B Final Balance Sheets
Exhibit C Broadway Sublease Term Sheet
SCHEDULES [Omitted]
Schedule 1.1A Significant Accounting Principles
Schedule 1.1B Computer Leases
Schedule 1.1C Customers who are Affiliates; Customers through Sub-Agreements
Schedule 1.1D IAS Business Exclusions
Schedule 1.1E September Balance Sheets
Schedule 2.2(a)(v) UST Branch Offices
Schedule 2.2(a)(vi) Acquired Business Leases
Schedule 2.2(a)(xv) Ownership Interests
Schedule 2.2(a)(xxiv) Certain Acquired Assets
</TABLE>
C-iii
<PAGE>
CONTRIBUTION AND ASSUMPTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT dated as of , 1995 (the
"Agreement" or "Contribution Agreement"), between UNITED STATES TRUST COMPANY
OF NEW YORK, a New York State chartered bank and trust company (including any
successor by merger, "USTNY"), and NEW U.S. TRUST COMPANY OF NEW YORK, a New
York State chartered bank and trust company and a wholly owned subsidiary of
USTNY ("New Trustco").
RECITALS
WHEREAS, U.S. Trust Corporation, a New York corporation (the "Company"),
of which USTNY is a wholly owned subsidiary, and The Chase Manhattan
Corporation, a Delaware corporation ("CMC"), have entered into an Agreement
and Plan of Merger, dated as of November 18, 1994 (the "Merger Agreement"),
providing for the Merger (as defined in the Merger Agreement) of the Company
with and into CMC, with CMC as the surviving corporation;
WHEREAS, immediately prior to the Effective Time (as defined in Section
1.3 of the Merger Agreement), subject to the satisfaction or waiver of the
conditions set forth in Article VI of this Contribution Agreement and the
consummation of the transactions contemplated hereby, (i) the Board of
Trustees of USTNY expects to distribute as a dividend to the Company all of
the outstanding shares of Common Stock (the "New Trustco Common Stock"), par
value $1.00 per share, of New Trustco (the "New Trustco Spin-Off"), (ii) the
Board of Directors of the Company expects to contribute the New Trustco Common
Stock and certain other assets of the Company to New USTC Holdings
Corporation, a New York corporation ("New Holdings"), which will be a newly
formed wholly owned subsidiary of the Company, and (iii) the Board of
Directors of the Company expects, following the contribution of the New
Trustco Common Stock to New Holdings, to distribute as a dividend to the
holders of Common Stock of the Company, par value $1.00 per share (the
"Company Common Stock"), on a pro rata basis, all of the then outstanding
shares of Common Stock (the "New Holdings Common Stock"), par value $1.00 per
share, of New Holdings (the "New Holdings Spin-Off" and, together with the New
Trustco Spin-Off, the "Spin-Offs"); and
WHEREAS, the purpose of the Spin-Offs is to make possible the Merger by
divesting the Company of all businesses and operations other than the Retained
Business (as defined in the Merger Agreement). This Contribution Agreement
provides for the transfer to, and assumption by, New Trustco, in anticipation
of the New Trustco Spin-Off, of the businesses, assets and liabilities of
USTNY other than the Processing Business and the Related Back Office and the
assets and liabilities relating thereto (the "Contribution"), and sets forth
certain agreements between USTNY and New Trustco in respect thereof.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. For purposes of this Agreement, the terms
defined in the recitals hereto shall have the meanings assigned to them in
such recitals, and the following terms shall have the meanings set forth
below:
"Abandoned Property" shall mean any funds or securities which are
payable or deliverable to third parties in connection with USTNY's
activities as trustee, custodian, paying agent or in a similar capacity,
and which have become "abandoned property" within the meaning of the New
York Abandoned Property Law or other applicable Federal or state laws
(regardless of whether such property has been delivered by USTNY to any
governmental authority entitled to or responsible for abandoned
property).
"Accounting Principles" shall mean the accounting principles set
forth on Schedule 1.1A hereto.
"Acquired Assets" shall have the meaning assigned to such term in
Section 2.2(a).
<PAGE>
"Acquired Business" shall mean all the businesses of USTNY,
including the Asset and Investment Management Business, the Corporate
Trust and Agency Business and the Private Banking Business, other than
the Processing Business and the Related Back Office.
"Acquired Third-Party Service Agreements" shall mean the third-party
services agreements related to the Related Back Office and maintained
for, and used predominantly by, the Acquired Business.
"Adjustment Amount" shall mean the sum of (i) the excess of (A) the
aggregate amount of the Statement Liabilities on the Final Processing
Balance Sheet over (B) the aggregate amount of the Statement Assets
(without inclusion of any Eligible Investments or funds to be retained by
USTNY at the Closing pursuant to Section 2.7(b)), minus(ii) the MFSC
Equity Amount, plus (iii) the Computer Lease Adjustment Amount, plus (iv)
the Retained Bank Plans Amount, plus (v) the Real Property Transfer Tax
Amount, plus (vi) the Transition Bonus Amount, plus (vii) the
Post-Retirement Benefit Adjustment Amount, plus (viii) the Put Adjustment
Amount, minus (ix) the UST-WY Equity Amount, plus (x) the sum of (A) $5.5
million plus (B) an amount equal to the MFSC Equity Amount plus (C) an
amount equal to the UST-WY Equity Amount.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the person specified.
"Anticipation Advances" shall have the meaning assigned to such term
in Section 2.2(b).
"Asset and Investment Management Business" shall mean the asset and
investment management business of USTNY and its Affiliates ("AIM"), as
conducted in the case of USTNY by its Asset Management Group, which
consists of administration of personal and family trusts and estates,
estate planning services, providing special fiduciary services,
broker-dealer services, custody services with respect to assets managed
by AIM, providing tax services and financial counseling and acting as a
discretionary trustee or an investment manager for stocks, bonds,
separately managed or pooled accounts, common trust funds and other
financial assets for individuals and entities including without
limitation, mutual funds, institutions and employee benefit plans.
"Asset Management System" shall mean the computer software
(including all source and object codes, manuals and related
documentation) comprising the core trust and custody software system
utilized by USTNY in the Processing Business and its other businesses,
which system is owned by Financial Technologies International, L.P.
("FTI"). The Asset Management System includes both the AMS/Open Product
(consisting of the (i) AMS/Open Customer Information System Product, (ii)
AMS/Open Access Security Product, (iii) Investor Information Workbench
Product, (iv) Administrators Information Workbench Product and (v) Global
Securities Industry Relational Data Model) and the AMS/1 System.
"Asset Management System Agreements" shall mean any and all
agreements with FTI or any third party relating to the Asset Management
System, including (i) the letter agreement between FTI and USTNY dated
August 29, 1994, relating to the AMS/1 system, (ii) the letter agreement
between FTI and USTNY dated August 29, 1994, relating to the AMS/Open
Product, and (iii) the Demonstration and Licensing Agreement between FTI
and USTNY dated August 29, 1994.
"Assumed Liabilities" shall have the meaning assigned to such term
in Section 2.3(a).
"Assumption Agreement" shall mean an assumption agreement in the
form of Exhibit A, pursuant to which New Trustco confirms its assumption
of, and its agreement to pay, perform and discharge, the Assumed
Liabilities.
"Bank Processing Services" shall mean loan processing services,
deposit processing services, check processing services, payments
processing services, cash management processing services, electronic
funds transfer services, ATM switching and settlement services, related
bank records and retrieval services, and other related processing
services.
C-2
<PAGE>
"Book Value" shall mean, with respect to any asset or liability, the
dollar amount thereof reflected in the accounting records of USTNY. The
Book Value of any item shall be determined as of the Closing Date after
adjustments made by USTNY for suspense items, unposted debits and credits
and other similar adjustments or corrections. Without limiting the
foregoing, the Book Value of (i) a Retained Liability shall include all
accrued and unpaid interest thereon as of the Closing Date, (ii) an
overdraft or loan shall reflect adjustments for accrued but unpaid
interest, (iii) a Retained Asset that is a financial asset shall not
include adjustments for reserves in the accounting records of USTNY and
(iv) any other Retained Asset shall be reflected net of applicable
depreciation and amortization.
"Broadway Lease" shall mean the Lease Agreement dated as of June 20,
1980, as amended, between New York Equities, Inc., as Lessor, and USTNY,
as Lessee, relating to space in the building located at 770 Broadway, New
York, New York.
"Broadway Lease Put" shall mean the letter agreement dated November
8, 1994, between New York Equities Company and USTNY relating to the
potential subletting, at the option of USTNY, to New York Equities
Company of certain floors covered by the Broadway Lease.
"Broadway Sublease" shall mean a sublease between USTNY as
sublessor, and New Trustco as sublessee, relating to portions of the
premises at 770 Broadway, New York, New York, to be entered into on
substantially the terms set forth on the Term Sheet attached as Exhibit
C.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which
banks are open for business in New York City.
"Capital Notes" shall mean the 8 1/2% Capital Notes due 2001 of
USTNY.
"Closing" shall mean the closing hereunder of the assignment and
transfer of the Acquired Assets and the transfer and assumption of the
Assumed Liabilities.
"Closing Date" shall mean the date on which the Closing occurs.
"CMB" shall mean The Chase Manhattan Bank (National Association), a
national banking association and a wholly owned subsidiary of CMC.
"CMC" shall have the meaning assigned to such term in the Recitals
hereof.
"Company" shall have the meaning assigned to such term in the
Recitals hereof.
"Company Common Stock" shall have the meaning assigned to such term
in the Recitals hereof.
"Computer Lease" shall mean any lease under which USTNY is the
lessee of data processing equipment or computer hardware used solely or
predominantly to support, or reasonably necessary to the conduct of, the
Processing Business and the Related Back Office. Any lease or licensing
agreement for system or application software that is hard-coded into such
equipment or computer hardware shall constitute a Computer Lease.
"Computer Lease Adjustment Amount" shall mean the product of (x) the
aggregate termination payments that would be required to be made to the
lessors under the Computer Leases listed on Schedule 1.1B if such leases
were terminated effective as of the Closing Date, determined in each case
by agreement of New Trustco and CMC in accordance with the terms of the
relevant lease multiplied by (y) 0.585.
"Contracts" shall have the meaning assigned to such term in Section
2.2(b).
"Contribution" shall have the meaning assigned to such term in the
Recitals hereof.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract
or otherwise, and "Controlling" and "Controlled" shall have meanings
correlative thereto.
C-3
<PAGE>
"Corporate Trust and Agency Business" shall mean the corporate trust
and agency business of USTNY and its Affiliates, which consists of acting
as trustee for the holders of interests representing obligations under
bonds, debentures, leases, structured obligations, derivative and
asset-backed securities, and voting trusts, acting as registrar, tender
agent, voting trustee, solicitation agent, drawing agent, authenticating
agent, warrant agent, paying agent, issuing agent, depositary or exchange
agent for cash, securities or other property (other than Registered
Investment Company securities), acting as fiscal agent under public bond
resolutions, acting as an escrow agent, transfer agent or collateral
agent for public and private corporations, partnerships (but not
Registered Investment Companies) and municipalities and acting as bond
immobilization agent.
"Customer Agreements" shall mean any contracts, agreements, trusts,
indentures, arrangements and other understandings between USTNY and any
Customer, including any indirect arrangement under which an Affiliate of
USTNY has appointed USTNY to act as subcustodian, sub-agent or in a
similar capacity, pursuant to which the Processing Business renders
Processing Services to such Customers.
"Customers" shall mean the customers and clients (other than
Excluded Customers) of the Processing Business in their capacity as such.
Without limiting the foregoing, the term "Customers" includes, in the
case of the UIT Business, Unit Trusts and sponsors of Unit Trusts; in the
case of the MFS Business, Investment Companies and Investment Company
sponsors and managers; and in the case of the IAS Business, insurance
companies, banks, limited partnerships, endowments, foundations and
pension, retirement and benefit plans. Notwithstanding anything to the
contrary contained in this Agreement, except to the extent specified on
Schedule 1.1C, neither the Company nor any subsidiary of the Company
shall be deemed to be a Customer. Each person who has an indirect
customer or client relationship with the Processing Business through an
Affiliate of USTNY that has appointed USTNY to act as subcustodian,
sub-agent or in a similar capacity, shall be deemed a Customer for
purposes hereof and are identified on Schedule 1.1C.
"Data Processing License" shall mean a lease or licensing agreement,
and any related support agreements, under which USTNY is the lessee of or
has a license to use systems or application software, which is used to
support, or is reasonably necessary to the conduct of, the UIT Business,
the MFS Business or the IAS Business, other than (i) any such lease or
licensing agreement that is a Computer Lease and (ii) the Asset
Management System Agreements.
"Delayed Asset" shall have the meaning assigned to such term in
Section 2.6(a).
"Delayed Liability" shall have the meaning assigned to such term in
Section 2.6(a).
"Deposit" shall mean a deposit, as defined in 12 U.S.C. 1813(1),
including all uncollected items included in a depositor's balance and
credited on the books of USTNY.
"Distribution Agreement" shall mean the Agreement and Plan of
Distribution, substantially in the form of Exhibit I to the Merger
Agreement, to be entered into among the Company, USTNY, New Holdings and
New Trustco, pursuant to which, among other things, the Spin-Offs will be
effected.
"Documents" shall mean this Agreement, the Assumption Agreement, the
Merger Agreement, the Distribution Agreement, the Post Closing Covenants
Agreement, the Tax Allocation Agreement, the Services Agreement, the
Forty-Seventh Street Lease Assignment, the Broadway Sublease and the
License Agreement.
"Eligible Investments" shall mean direct obligations of the United
States of America having at the Closing Date a remaining term to maturity
not in excess of one year.
"Estimated Balance Sheets" shall mean the Estimated Processing
Balance Sheet, the Estimated MFSC Balance Sheet and the Estimated UST-WY
Balance Sheet.
"Estimated MFSC Balance Sheet" shall mean a balance sheet prepared
by USTNY with respect to the assets and liabilities of MFSC as of the
close of business on the day immediately prior to the Closing Date, but
giving effect to the transfers of assets of MFSC to New Holdings
contemplated by Section 4.2
C-4
<PAGE>
of the Distribution Agreement. The Estimated MFSC Balance Sheet shall be
in the form of Exhibit B and shall be prepared in accordance with the
Accounting Principles on the same basis as MFSC's audited balance sheet
for its fiscal year ended December 31, 1993 and in accordance with the
provisions of Section 2.7.
"Estimated UST-WY Balance Sheet" shall mean a balance sheet prepared
by USTNY with respect to the assets and liabilities of UST-WY as of the
close of business on the day immediately prior to the Closing Date, but
giving effect to the transfers of assets of UST-WY to New Holdings
contemplated by Section 4.2 of the Distribution Agreement. The Estimated
UST-WY Balance Sheet shall be in the form of Exhibit B and shall be
prepared in accordance with the Accounting Principles on the same basis
as UST-WY's balance sheet for its fiscal year ended December 31, 1993 and
in accordance with the provisions of Section 2.7.
"Estimated Processing Balance Sheet" shall mean an estimated balance
sheet prepared by USTNY with respect to the Retained Assets and Retained
Liabilities of USTNY (to the extent they would appear on a balance sheet
prepared in accordance with the Accounting Principles) as of the close of
business on the day immediately prior to the Closing Date. The Estimated
Processing Balance Sheet shall be in the form of Exhibit B, and shall be
prepared in accordance with the provisions of Section 2.7.
"Excluded Customers" shall mean Lafayette College Endowment,
Hallmark Cards and Florida Prepaid College Program.
"Federal Funds Rate" shall mean, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on
the next succeeding Business Day by The Wall Street Journal, Eastern
Edition or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day for such
transactions received by CMB from three Federal funds brokers of
recognized standing selected by it.
"Final Balance Sheets" shall mean the Final Processing Balance
Sheet, the Final MFSC Balance Sheet and the Final UST-WY Balance Sheet.
"Final MFSC Balance Sheet" shall mean a balance sheet prepared by
USTNY with respect to the assets and liabilities of MFSC as of the close
of business on the day immediately prior to the Closing Date, but giving
effect to the transfers of assets of MFSC to New Holdings contemplated by
Section 4.2 of the Distribution Agreement. The Final MFSC Balance Sheet
shall be in the form of Exhibit B and shall be prepared in accordance
with the Accounting Principles on the same basis as MFSC's audited
balance sheet for its fiscal year ended December 31, 1993 and in
accordance with the provisions of Section 2.7.
"Final Processing Balance Sheet" shall mean a balance sheet prepared
by USTNY with respect to the Retained Assets and Retained Liabilities of
USTNY (to the extent they would appear on a balance sheet prepared in
accordance with the Accounting Principles) as of the close of business on
the day immediately prior to the Closing Date. The Final Processing
Balance Sheet shall be in the form of Exhibit B, and shall be prepared in
accordance with the provisions of Section 2.7.
"Final UST-WY Balance Sheet" shall mean a balance sheet prepared by
USTNY with respect to the assets and liabilities of UST-WY as of the
close of business on the day immediately prior to the Closing Date, but
giving effect to the transfers of assets of UST-WY to New Holdings
contemplated by Section 4.2 of the Distribution Agreement. The Final
UST-WY Balance Sheet shall be in the form of Exhibit B and shall be
prepared in accordance with the Accounting Principles on the same basis
as UST-WY's balance sheet for its fiscal year ended December 31, 1993 and
in accordance with the provisions of Section 2.7.
"Fixtures" shall mean all leasehold improvements, additions and
alterations to leasehold premises as of the Closing Date.
C-5
<PAGE>
"Float Amount" shall mean the amount, as reflected on the Final
Balance Sheets, of any check, draft, payment order or similar item
originating from the Processing Business and payable by or drawn upon a
Customer account at USTNY that has not, as of the close of business on
the day immediately prior to the Closing Date, been paid by or charged
against such account.
"Forty-Seventh Street Lease" shall mean, collectively, the Lease
dated as of September 10, 1987, between 46-47 Associates, as Lessor, and
USTNY, as Lessee, relating to space at 114 West 47th Street, New York,
New York; the Subordination Agreement dated as of September 10, 1987,
between USTNY and 1133 Building Corp.; the Right of First Refusal dated
as of September 10, 1987, between USTNY and 46-47 Associates; and the
Agreement dated as of September 10, 1987, among USTNY, 46-47 Associates
and 1155 Office Building Corp.; each agreement heretofore entered into by
USTNY relating to or supplementing any of the foregoing; and each
amendment, clarification and modification to or under any of the
foregoing, all as set forth, or incorporated by reference in Exhibits
10.5, 10.6, 10.7 and 10.8 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, filed with the SEC.
"Forty-Seventh Street Lease Assignment" shall mean, collectively,
the assignments to New Trustco of, and assumption by New Trustco of, all
USTNY's rights, benefits, duties and obligations under the Forty-Seventh
Street Lease. The Forty-Seventh Street Lease Assignment shall be in such
form as may be agreed to by New Trustco, USTNY and other parties thereto
and approved by CMC.
"Furniture and Equipment" shall mean the furniture and equipment
(other than equipment subject to a Computer Lease) owned or (to the
extent of the lessee's interest) leased by USTNY as of the Closing Date
that, in each case, is currently used in, or is reasonably necessary for,
the conduct of the Processing Business and Related Back Office.
"Governmental Entity" shall mean any Federal, state or local
government or any court, administrative agency or commission or other
governmental authority or agency or self-regulatory agency, domestic or
foreign.
"IAS Business" shall mean the institutional asset services business
of USTNY and its Affiliates, as conducted by the Company's Institutional
Asset Services Division, which includes master trust and custody
services, zero-balance account services conducted for Customers
(including Merrill Lynch and Nike), securities processing services,
global custody services, on-line accounting and reporting, quantitative
analysis, securities lending services, short term money management
services related to custody services, investment manager services, rabbi
trust services, benefit payment services and portfolio performance
evaluation services, in each case, provided to corporate employee
retirement, pension or benefit funds, 401(k) plans, public funds,
endowments and foundations, limited liability companies, group trusts,
insurance companies and financial institutions; provided, however, that
the IAS Business does not include (i) USTNY's corporate, municipal and
employee stock ownership plan trust and agency business, (ii) the
business conducted by CTMC Holding Company, an Oregon corporation, and
U.S. Trust of the Pacific Northwest, an Oregon corporation, in each case,
as described on Schedule 1.1D hereto or (iii) the business conducted by
the Special Fiduciary Division of U.S. Trust of California, as described
on Schedule 1.1D hereto, or, in each case, any assets, liabilities,
agreements or personnel thereof, or used exclusively therewith, and not
of, or reasonably necessary to, the conduct of the Processing Business.
"License Agreement" shall mean a Software License Agreement
substantially in the form of Exhibit IV to the Merger Agreement.
"Lien" shall mean any mortgage, lien, pledge, charge, assignment for
security purposes or security interest.
"Liquidation Value" shall mean with respect to any unit of any
Eligible Investment on any Business Day, (i) the price at which such unit
is sold on such Business Day or at the opening of the market on the next
following Business Day or (ii) if such unit is not so sold, the average
of the bid price for such unit on
C-6
<PAGE>
that Business Day obtained by CMB from three established dealers on the
principal United States inter-dealer market in which such Eligible
Investment is regularly traded.
"Merger Agreement" shall have the meaning assigned to such term in
the Recitals hereof.
"MFS Business" shall mean the mutual funds services business of the
Company and its subsidiaries (including MFSC), which includes providing
domestic and global custody, transfer agency, fund accounting, funds
administration, securities lending and related banking and cash
management services to Registered Investment Companies.
"MFSC" shall mean Mutual Funds Service Company, a Delaware
corporation and a wholly owned subsidiary of the Company.
"MFSC Equity Amount" shall mean the amount of MFSC's net worth as
shown as a liability on the Estimated MFSC Balance Sheet and the Final
MFSC Balance Sheet, which shall be equal to the excess of (x) the
aggregate assets reflected on such balance sheet over (y) the aggregate
liabilities reflected on such balance sheet.
"New Holdings" shall have the meaning assigned to such term in the
Recitals hereof.
"New Holdings Common Stock" shall have the meaning assigned to such
term in the Recitals hereof.
"New Holdings Spin-Off" shall have the meaning assigned to such term
in the Recitals hereof.
"New Trustco" shall have the meaning assigned to such term in the
introduction hereof.
"New Trustco Common Stock" shall have the meaning assigned to such
term in the Recitals hereof.
"New Trustco Documents" shall have the meaning assigned to such term
in Section 4.2(b).
"New Trustco Spin-Off" shall have the meaning assigned to such term
in the Recitals hereof.
"Person" shall mean any natural person, corporation, partnership,
business trust, joint venture, association, company or government, or any
agency or political subdivision thereof.
"Post Closing Covenants Agreement" shall mean an agreement among
CMC, CMB, the Company, USTNY, New Holdings and New Trustco in the form of
Exhibit VI to the Merger Agreement, relating to certain post-closing
obligations of the parties thereto.
"Post-Retirement Benefit Adjustment Amount" shall mean $1,750,000.
"Private Banking Business" shall mean the private banking business
of USTNY and its Affiliates which consists of the provision of a full
range of commercial banking and fiduciary services to individuals,
families, family offices, partnerships and other entities. Services and
products provided by the Private Banking Business include checking
accounts, money market accounts, certificates of deposit, secured and
unsecured loans, mortgage loans, lines of credit, letters of credit,
custody and securities administration services, secured broker loans and
cash management services offered to securities industry participants and
financial institutions (other than Customers).
"Processing Business" shall mean the UIT Business, the MFS Business
and the IAS Business, collectively.
"Processing Business Abandoned Property" shall mean Abandoned
Property relating to Termination Account Liabilities and to other claims
arising from accounts of Customers.
"Processing Services" shall mean those services which, as of the
date hereof, are being regularly and customarily provided to Customers by
the UIT Business, the MFS Business and the IAS Business.
"Put Adjustment Amount" shall mean $250,000.
"Real Property Transfer Tax Amount" shall mean the product of (i)
the aggregate amount of New York City real property transfer and real
property transfer gains taxes payable by USTNY in connection
C-7
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with the transfer to New Trustco of the Forty-Seventh Street Lease and
other leasehold interests as part of the Contribution and in connection
with USTNY's entry into the Broadway Sublease and (ii) 0.585.
"Registered Investment Company" shall mean an "investment company",
as such term is defined in Section 3 of the Investment Company Act of
1940, as amended, which is registered as an investment company with the
SEC in accordance with Section 8 of such Act.
"Related Back Office" shall mean USTNY's Computer Services Division
and Securities Services and Trust Operations Division, including the
computer equipment, laser printers, bar coding and mailing machines,
other furniture, fixtures and equipment, inventory and supplies and other
property and assets thereof (but not stationery or other forms or blanks
reflecting USTNY's or any similar name), but not including any furniture,
fixtures, equipment or facilities solely related to providing Bank
Processing Services.
"Related Schedules" shall have the meaning assigned to such term in
Section 2.7(b).
"Required Consent" shall mean, with respect to any agreement, lease
or contract, any consent, waiver or agreement of any party thereto (other
than USTNY) or of any other person that is legally required in order to
effect the assignment and transfer thereof to New Trustco, the assumption
thereof by New Trustco, and the release therefrom of USTNY, as
contemplated hereby. For purposes hereof, a Required Consent may be
obtained pursuant to a waiver of consent and release and shall also be
deemed to have been obtained if a person party to such agreement, lease
or contract agrees to enter into (or enters into) an agreement with New
Trustco or an Affiliate of New Trustco (a "Substitute Agreement"), which
supersedes, and releases USTNY from, and serves a substantially similar
function as, such agreement, lease or contract.
"Retained Assets" shall have the meaning assigned to such term in
Section 2.2(b).
"Retained Bank Plan Amount" shall mean the sum of the aggregate
amounts, determined as of the close of business on the day immediately
prior to the Closing Date, of the cash payments (i) required to be made
as of or after the Effective Time under the 1986 Stock Option Plan, plus
(ii) required to pay employer payroll taxes, including the employer's
share of FICA and FUTA, due with respect to the payments described in
clause (i) above.
"Retained Employees" shall have the meaning assigned to such term in
Section 5.8(a) of the Merger Agreement.
"Retained Liabilities" shall have the meaning assigned to such term
in Section 2.3(b).
"SEC" shall mean the Securities and Exchange Commission.
"September Balance Sheets" shall mean the balance sheets of (i) the
Processing Business and the Related Back Office, (ii) MFSC and (iii)
UST-WY, in each case at September 30, 1994, as set forth on Schedule 1.1E
hereto.
"Services Agreement" shall mean an agreement or agreements between
USTNY and New Trustco to be entered into substantially on the terms set
forth in the Services Agreement Term Sheet dated the date of the Merger
Agreement and signed for identification purposes on behalf of the Company
and CMC.
"Spin-Offs" shall have the meaning assigned to such term in the
Recitals hereof.
"Statement Assets" shall mean all the assets of the Processing
Business and the Related Back Office reflected on the Final Processing
Balance Sheet, including the Eligible Investments and funds to be
retained by USTNY on the Closing Date.
"Statement Liabilities" shall mean all the Deposits and other
Retained Liabilities which are reflected on the Final Processing Balance
Sheet.
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"Substitute Agreement" shall have the meaning assigned to such term
in the definition of the term Required Consent.
"Tax Allocation Agreement" shall mean the Tax Allocation Agreement,
substantially in the form of Exhibit V to the Merger Agreement, to be
entered into among the Company, USTNY, New Holdings and CMC.
"Taxes" shall mean all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs or governmental charges
(and all penalties and interest relating thereto) imposed by a
governmental authority pursuant to the exercise of its power to tax.
"Termination Account Liabilities" shall mean (i) Deposit liabilities
of the Processing Business in respect of units of Unit Trusts which have
been redeemed and which are payable upon surrender of the certificates
evidencing such units and (ii) similar Deposit liabilities attributable
to the UIT Business and reflected in the "termination account" on the
books and records of the Processing Business.
"Transferred Processing Receivables" shall mean all receivables of
the Processing Business including receivables relating to advances,
claims of payments, extensions of credit, overdrafts and amounts paid on
Customer accounts of paying agents, brokers, depositories or other third
parties outstanding as of the close of business on the day immediately
prior to the Closing Date that, at such time, (i) are subject to any
dispute with the Customer that is the account debtor in respect of such
receivable, (ii) contravene in any material respect any laws, rules or
regulations applicable thereto or (iii) have been assigned to a
collection agency or are more than 120 days past the date of advance or
the date payable.
"Transition Bonus Amount" shall mean an amount equal to the product
of (x) the Company's Share of the Program Cost, multiplied by (y) a
fraction equal to 0.68875. For purposes of the foregoing, the "Company's
Share of the Program Cost" shall mean an amount equal to the sum of the
products, determined separately for each employee who is a Retained
Employee at the Effective Time, of (i) the amount of the Transition Bonus
specified in Schedule 5.8(e) of the Merger Agreement for such employee,
multiplied by (ii) a fraction, the numerator of which is the number of
days in the period commencing on the date following the date of the
Merger Agreement and ending on the Closing Date, and the denominator of
which is the number of days in the period commencing on the date
following the date of the Merger Agreement and ending on the last day of
the period of such employee's Required Service, as specified in Schedule
5.8(e) of the Merger Agreement.
"UIT Business" shall mean the unit investment trust business of
USTNY and its Affiliates, which includes acting as a trustee for Unit
Trusts, maintaining custody of securities and investments for Unit
Trusts, collecting and distributing to unit holders interest, dividend
and principal payments with respect to such securities and investments,
processing unit redemptions and transfers, providing reporting services
and annual reports for Unit Trusts and providing transfer agency and
customer service for certain closed-end bond funds of John Nuveen & Co.,
Incorporated ("Nuveen").
"Uncollected Items" shall mean any check, draft, payment order, wire
transfer advice, security transfer advice, provisional credit or advance,
or similar item that has been delivered to, or received in respect of the
Processing Business and Related Back Office as a Deposit on or before the
close of business on the day preceding the Closing Date but which at such
time is in the process of collection or has not yet settled.
"Unit Trust" shall mean a "unit investment trust" as such term is
defined in Section 4 of the Investment Company Act of 1940, as amended.
"USTNY" shall have the meaning assigned to such term in the
introduction hereof.
"USTNY Documents" shall have the meaning assigned to such term in
Section 4.2(a).
"UST-WY" shall mean U.S. Trust Co. of Wyoming, a Wyoming corporation
and a wholly owned subsidiary of the Company.
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"UST-WY Equity Amount" shall mean the amount of UST-WY's net worth
as shown as a liability on the Estimated UST-WY Balance Sheet and the
Final UST-WY Balance Sheet, which shall be equal to the excess of (x) the
aggregate assets reflected on such balance sheet over (y) the aggregate
liabilities reflected on such balance sheet.
"1986 Stock Option Plan" shall mean the United States Trust Company
of New York and Affiliated Companies 1986 Stock Option Plan.
As used herein, the phrase "close of business on the day immediately
prior to the Closing Date" and similar references shall mean 11:59 p.m.
on the day immediately prior to the Closing Date.
ARTICLE II
Contribution of Assets and Assumption of Liabilities
SECTION 2.1. Contribution. Upon the terms and subject to the conditions
of this Agreement, USTNY hereby assigns, transfers, conveys and contributes to
New Trustco, effective as of the Closing, and New Trustco hereby acquires,
effective as of the Closing, all of USTNY's right, title and interest in, to
and under the Acquired Assets.
SECTION 2.2. Acquired Assets and Retained Assets. (a) The term
"Acquired Assets" means all the business, properties, assets, goodwill and
rights of USTNY of whatever kind and nature, real or personal, tangible or
intangible, other than the Retained Assets, owned by USTNY on the Closing
Date, including the following:
(i) all assets used or held for use primarily in the Acquired
Business of USTNY;
(ii) all contracts, agreements, mortgages, indentures, escrows,
trusts and understandings entered into by USTNY with customers or clients
of the Acquired Business relating to such businesses and all rights,
claims and benefits in connection therewith, including the right to
possession of custodial or trust assets subject thereto;
(iii) all mortgages, loans, overdrafts, lines of credit, rights in
respect of letters of credit and similar assets of the Acquired Business
and all rights in respect of collateral or security (except rights in
collateral to the extent that such rights secure any Retained Assets) for
any of the foregoing;
(iv) all accrued fees, accrued interest or discount, and all
accounts receivable (including all Transferred Processing Receivables),
other than those of the Processing Business and the Related Back Office
reflected on the Final Processing Balance Sheet;
(v) each of the branch offices of USTNY, as set forth on Schedule
2.2(a)(v);
(vi) all real property owned by USTNY and all rights in, to and
under the Forty-Seventh Street Lease, the leasehold estate under the
Broadway Sublease, and the leases listed on Schedule 2.2(a)(vi), and
ownership of, and all rights to, all Fixtures in leasehold premises
subject to such leases or sublease;
(vii) all monies, cash on hand, funds available for investment,
investments, securities, securities purchase agreements, swap agreements,
forward rate agreements, and derivative agreements of, or held for the
account of, USTNY, other than Eligible Investments or funds reflected on
the Final Processing Balance Sheet and retained by USTNY pursuant to
Section 2.7(b);
(viii) all trademarks, trademark registrations, service marks and
trade names which contain the words "United States Trust" or "U.S. Trust"
and all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses with
respect thereto (except for the patents, patent applications and
copyrights relating to the USTNY proprietary software referred to in
Section 2.2(b)(vii)), used or held for use solely or predominantly for
the Acquired Business;
(ix) all rights associated with the Acquired Third-party Service
Agreements;
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(x) certain performance measurement service agreements listed on
Schedule 3.1(q) to the Merger Agreement;
(xi) USTNY's right, title and interest in all lease and licensing
agreements, and related support agreements, with third parties for the
use of systems and applications software, and all copies of the software
(source code and object code), manuals and related documentation covered
by such lease or license agreements, which are in USTNY's possession as
of the Closing Date (excluding Data Processing Licenses and Computer
Leases);
(xii) notwithstanding anything to the contrary in Section 2.2(a)(xi)
and Section 2.2(b)(vi), USTNY's right, title and interest in all lease
and licensing agreements, and related support agreements, with third
parties for the use of third party PC software installed on servers,
workstations and personal computers which are part of the Acquired
Assets, and all copies of the software (source code and object code),
manuals and related documentation covered by such lease or license
agreements which are in USTNY's possession as of the Closing Date;
(xiii) USTNY's right, title and interest in the Asset Management
System Agreements and all copies of the Asset Management System in
USTNY's possession as of the Closing Date;
(xiv) all equity or debt investments held for the account of USTNY
in any corporation, joint venture, partnership, trust or other business
association, including the capital stock and other ownership interests
set forth in Schedule 2.2(a)(xv) and all intercompany advances owed to
USTNY by Affiliates of USTNY (other than MFSC);
(xv) all rights of USTNY as adviser, trustee and sponsor in respect
of any mutual fund, common trust fund or collective investment fund
sponsored, managed, advised or maintained by USTNY, including USTNY's
Short Term Investment Fund and the UST Master Money and Government Funds;
(xvi) all records prepared in connection with the Merger
contemplated by the Merger Agreement or the sale of the Processing
Business and Related Back Office, including bids received from other
persons and analyses relating to the Processing Business and Related Back
Office, and all books of account, general, financial, accounting and
personnel records, files, invoices and similar data owned by USTNY
relating to the Acquired Business on the Closing Date;
(xvii) all rights relating to the Assumed Liabilities;
(xviii) all rights relating to Abandoned Property (except Processing
Business Abandoned Property);
(xix) all financial institution bonds, banker's blanket bonds,
policies of insurance or similar agreements, and all proceeds and rights
in respect thereof;
(xx) any special or general reserves or reserves maintained on
deposit with the Federal Reserve System;
(xxi) all recoveries on the charged-off portions of loans and
receivables, including those of the Processing Business;
(xxii) all collateral posted to secure clearing and other contingent
obligations with any clearing or similar organization, including the
Depository Trust Company of New York;
(xxiii) all fees or accounts receivable of the Processing Business
and the Related Back Office which have been paid on or before the close
of business on the day immediately prior to the Closing Date, regardless
of whether still in the process of collection and all claims in respect
of items received in payment of such fees or accounts receivable; and
(xxiv) all assets identified on Schedule 2.2(a)(xxiv).
(b) The term "Retained Assets" means, subject to the provisions of
Section 2.6, all the business, properties, assets, goodwill and rights of
USTNY of whatever kind and nature, real or personal, tangible or
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intangible, that are primarily used, or that are held for use in, or are
reasonably necessary for the conduct by USTNY of, the Processing Business and
the Related Back Office on the Closing Date, including the following (but
excluding the Acquired Assets specifically identified in Section 2.2(a)):
(i) all Customer Agreements and all rights and claims in connection
therewith, including the right to possession of custodial or trust assets
subject to Customer Agreements;
(ii) all accounts receivable and all accrued and unpaid fees under
Customer Agreements owed to USTNY on the Closing Date and arising out of
the operations of or services performed by the Processing Business, but
not the Transferred Processing Receivables;
(iii) all contracts and agreements, commitments and all other
arrangements that are legally binding on the other parties thereto,
whether oral or written ("Contracts") (other than the Asset Management
System Agreements, Customer Agreements, Data Processing Licenses and
Computer Leases), to which USTNY is a party or by which USTNY is bound,
that are referenced in Section 3.1(l) of the Merger Agreement and all
other Contracts that relate to the Processing Business or the Related
Back Office which are not required to be scheduled pursuant to Section
3.1(l) of the Merger Agreement;
(iv) the Broadway Lease and the Fixtures located in the premises
covered by the Broadway Lease other than Fixtures located in the premises
on the 8th Floor and a portion of the 9th Floor (excluding the cafeteria)
covered by the Broadway Sublease;
(v) the Broadway Lease Put;
(vi) the Furniture and Equipment, the Computer Leases and the Data
Processing Licenses;
(vii) all USTNY proprietary systems and application software
(including all source and object codes, manuals and related
documentation) or licenses or rights of use with respect thereto;
(viii) notwithstanding anything to the contrary in Section
2.2(a)(xi) and Section 2.2(b)(vii), USTNY's right, title and interest in
all lease and license agreements with third parties for the use of third
party PC software installed on servers, workstations and personal
computers which are part of the Retained Assets, and all copies of the
software (source code and object code), manuals and related documentation
covered by such lease or license agreements which are in USTNY's
possession as of the Closing Date;
(ix) any and all patents, patent applications, trademarks, trademark
registrations, service marks, tradenames, copyrights, or licenses with
respect thereto used or held for use solely or predominantly for the
Processing Business or the Related Back Office, except for any
trademarks, trademark registrations, service marks and tradenames which
contain the words "United States Trust" or "U.S. Trust";
(x) all overdrafts, loans or other extensions of credit made by the
Processing Business to Customers and outstanding on the Closing Date,
including loans and advances made by USTNY to Customers in order to
permit the payment of dividends, principal, interest or other amounts
payable in respect of securities held in custody prior to the actual
receipt of payments from the issuers of or other obligors on such
securities ("Anticipation Advances"), but excluding Transferred
Processing Receivables;
(xi) all inventory and supplies owned by USTNY on the Closing Date
that are used or held for use by the Processing Business and the Related
Back Office, but not inventory or supplies with respect to which the name
"U.S. Trust" or a related name is an integral part;
(xii) all Uncollected Items;
(xiii) all Customer files and records;
(xiv) all books of account, general, financial, accounting and
personnel records, files, invoices, and other similar data owned by USTNY
on the Closing Date maintained at the offices of, or used by, the
personnel of the Processing Business and the Related Back Office, or used
or held for use by the Processing Business and the Related Back Office;
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(xv) all rights relating to Retained Liabilities;
(xvi) the portion of FDIC assessments prepaid by USTNY and allocable
to Deposits associated with the Processing Business;
(xvii) all rights of USTNY under this Agreement and the agreements,
instruments and certificates delivered in connection with this Agreement;
(xviii) the Related Back Office; and
(xix) to the extent not included in clauses (i) through (xviii)
above, the Statement Assets, including the Eligible Investments and funds
retained by USTNY pursuant to Section 2.7.
(c) The transfer of the Acquired Assets hereunder is made without
recourse to USTNY. No representation is made by USTNY to New Trustco
concerning the collectibility, quality, enforceability or fitness of any
Acquired Assets.
(d) USTNY acknowledges that certain Customer Agreements of the IAS
Business for Cash Management Services (as defined in the Post Closing
Covenants Agreement) relating to collective investment vehicles that will be
maintained or advised by New Trustco are part of the Retained Assets. In each
such instance, each of USTNY and New Trustco shall use its best efforts to
have the relevant Customers of the IAS Business enter into agreements with
USTNY in order to transfer the money management relationship of such Customers
to USTNY.
SECTION 2.3. Assumption of Certain Liabilities. (a) Upon the terms and
subject to the conditions of this Agreement, New Trustco hereby assumes,
subject to Section 2.6, effective as of the Closing, and agrees to pay,
perform and discharge when due and indemnify USTNY and hold USTNY harmless
from and against the Assumed Liabilities. The term "Assumed Liabilities" shall
mean all liabilities of USTNY existing on the Closing Date, whether current or
long-term, absolute or contingent, matured or unmatured, known or unknown,
liquidated or unliquidated, due or to become due, including the following
liabilities, other than Retained Liabilities:
(i) all liabilities and obligations of USTNY, whether matured or
unmatured, fixed or contingent, relating to or arising out of the
Acquired Business, including all Deposits of such businesses and all
liabilities, duties and obligations in respect of indentures, contracts,
leases or other agreements with customers or clients of, or other persons
dealing with, such businesses;
(ii) all claims, liabilities or litigation arising out of any event,
occurrence, action or omission taken or occurring prior to the Closing
Date by or with respect to USTNY, its officers, directors, Board of
Trustees, employees, agents or representatives;
(iii) all obligations in respect of the Capital Notes;
(iv) any obligation or liability which is attributable to any of the
Acquired Assets or any expense arising from the ownership by New Trustco
of the Acquired Assets;
(v) all liabilities and obligations under each Benefit Plan (as
defined in the Merger Agreement) that is transferred to New Trustco
pursuant to Section 2.4;
(vi) any liability in respect of Abandoned Property other than
Processing Business Abandoned Property;
(vii) all fees and expenses of USTNY and its subsidiaries incurred
on or before the Contribution in connection with the Merger; and
(viii) all duties, obligations and liabilities under Customer
Agreements and Contracts relating to the Processing Business and the
Related Back Office that are to be performed or discharged prior to the
Closing Date.
Notwithstanding anything to the contrary in this Agreement, Assumed
Liabilities shall not include any liability for Taxes, except as provided in
the Tax Allocation Agreement.
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(b) At all times at and after the Closing, USTNY will, subject to Section
2.6, retain and be solely responsible for, and USTNY hereby agrees to pay,
perform and, discharge when due, and indemnify New Trustco and hold New
Trustco harmless from and against, the Retained Liabilities. The term
"Retained Liabilities" shall mean the following liabilities:
(i) all Deposits arising from the Processing Business, including
Termination Account Liabilities and other Deposit liabilities relating to
Processing Business Abandoned Property and Deposits relating to
Uncollected Items, but only to the extent reflected on the Final
Processing Balance Sheet;
(ii) all liabilities to trade creditors and accounts payable of the
Processing Business and the Related Back Office, but only to the extent
fully liquidated and reflected on the Final Processing Balance Sheet;
(iii) all duties, obligations and liabilities under Customer
Agreements relating to the Processing Business, but not any liability for
defaults or damages arising before the Closing Date;
(iv) all duties, obligations and liabilities under Contracts
relating to the Processing Business and the Related Back Office, but not
any liability for defaults or damages arising before the Closing Date;
(v) (A) all liabilities and obligations for amounts required to be
paid as of or after the Effective Time under the terms of the 1986 Stock
Option Plan and employer payroll taxes due with respect to such amounts,
but not in excess of the Retained Bank Plan Amount, and (B) all
liabilities and obligations for amounts payable under the Transition
Bonus Program (as defined in the Merger Agreement) maintained by USTNY;
(vi) all obligations and duties as lessee under the Broadway Lease,
but not any liability for defaults or damages arising before the Closing
Date;
(vii) escheatment obligations relating to Processing Business
Abandoned Property; and
(viii) to the extent not included in (i) through (vii) above, the
Statement Liabilities.
Notwithstanding anything to the contrary in this Agreement, Retained
Liabilities shall not include any liability for Taxes, except as provided in
the Tax Allocation Agreement.
SECTION 2.4. Benefit Plans; Employee Matters. (a) Effective as of the
Closing, USTNY shall transfer each Benefit Plan (as defined in the Merger
Agreement) maintained by it, other than any Retained Plan and the Transition
Bonus Program (each as defined in the Merger Agreement), to New Trustco, and
New Trustco shall assume and become solely responsible for all liabilities and
obligations of USTNY and its Subsidiaries under each of the Benefit Plans so
transferred. Effective as of the Closing, each person who immediately prior to
the Closing is an employee of USTNY or any of its Affiliates and who will not
be a Retained Employee as of the Effective Time shall become an employee of
New Trustco or of any Affiliate of New Trustco designated by it.
(b) Notwithstanding the definition of "Retained Bank Plan Amount"
contained in Section 1.1, it is understood that (i) the cash payments required
to be made as of or after the Effective Time under the 1986 Stock Option Plan
are payments with respect only to stock options granted under such plan (other
than any incentive stock options granted under such plan prior to October 27,
1987) and (ii) such cash payments will be determined in accordance with the
provisions of such plan on the basis of a "Change in Control" being deemed to
have occurred thereunder with respect to such stock options (other than any
incentive stock options granted under such plan prior to October 27, 1987) as
a result of the Merger.
SECTION 2.5. Capital Notes. Prior to the Closing, USTNY shall (i) have
all obligations of USTNY in respect of the Capital Notes transferred to and
assumed by New Trustco and USTNY irrevocably released and discharged
therefrom, effective as of the Closing Date, in accordance with the terms of
the indenture governing the Capital Notes or (ii) give an effective notice
under such indenture to redeem all the outstanding Capital Notes in accordance
with the terms of such indenture and irrevocably deposit with the trustee
under such indenture funds sufficient to pay all amounts of principal, premium
and accrued interest on the Capital Notes at the stated redemption date
thereunder.
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SECTION 2.6. Delayed Assets and Liabilities. (a) To the extent that any
Required Consent with respect to a contract, agreement, lease or other
instrument included in the Acquired Assets has not been obtained on or prior
to the Closing Date, such contract, agreement, lease or instrument (a "Delayed
Asset") shall not be transferred as an Acquired Asset hereunder, and any
related liability (a "Delayed Liability") shall not be assumed by New Trustco
as an Assumed Liability hereunder, unless and until such Required Consent has
been obtained. Notwithstanding the foregoing, if such a Required Consent to
transfer is not obtained, USTNY will reasonably cooperate with New Trustco to
attempt to provide to New Trustco the benefits under or of any such Delayed
Asset; provided, however, that New Trustco shall assume, pay and perform (and
indemnify and hold USTNY harmless from and against) all obligations and
liabilities relating to such Delayed Asset or Delayed Liability and shall
promptly reimburse USTNY for all of its actual costs and expenses (including
attorneys' fees and employee salaries and allocable benefits, but not
overhead) in connection with any such arrangement.
(b) At such time and on each occasion after the Closing Date that a
Required Consent shall be obtained with respect to a Delayed Asset, such
Delayed Asset shall forthwith be transferred and assigned to New Trustco
hereunder, and all related Delayed Liabilities shall be simultaneously assumed
by New Trustco hereunder, whereupon (i) such Delayed Asset shall constitute an
Acquired Asset for all purposes hereunder and (ii) such Delayed Liabilities
shall constitute Assumed Liabilities for all purposes hereunder.
SECTION 2.7. Estimated and Final Balance Sheets; Eligible Investment
Retention. (a) USTNY shall prepare the Estimated Balance Sheets prior to the
Closing. The Estimated Balance Sheets and Final Balance Sheets shall be
prepared in accordance with the Accounting Principles in substantially the
same format as the September Balance Sheets, and shall set forth, as of the
close of business on the day immediately preceding the Closing Date, the
assets and liabilities of (i) the Processing Business conducted by USTNY and
the Related Back Office, the Processing Business conducted by MFSC and the
business conducted by UST-WY, in each case, recorded at their Book Values;
provided, however, that the such balance sheets (i) shall reflect Anticipation
Advances and Uncollected Items but shall not include any Transferred
Processing Receivables, (ii) shall not reflect any amounts in respect of the
Computer Lease Adjustment Amount (or the loss on termination of Computer
Leases relating thereto), the Put Adjustment Amount, the Retained Bank Plans
Amount, the Real Property Transfer Tax Amount, the Transition Bonus Amount,
the Post-Retirement Benefit Adjustment Amount or any liabilities in respect of
Taxes on income, (iii) shall not reflect the leasehold space (or leasehold
improvements in such space) on the 8th Floor and a portion of the 9th Floor
covered by the Broadway Sublease and (iv) shall reflect all Eligible
Investments to be retained by USTNY pursuant to Section 2.7(b) at their
Liquidation Values. The Estimated Balance Sheets and the Final Balance Sheets
described in paragraph (b) below may reflect reasonable estimates of any items
the exact amounts of which are not then known to or reasonably ascertainable
to the extent reasonably agreed to by New Trustco and CMC; provided, however,
that notes to the Estimated Balance Sheets or the Final Balance Sheets, as the
case may be, shall set forth in detail the basis for such estimates.
(b) Not fewer than three Business Days before the Closing, USTNY shall
provide New Trustco and CMC with the Estimated Balance Sheets and drafts of
schedules ("Related Schedules") setting forth (i) a listing by series or issue
of the face amount of Eligible Securities, (ii) the Fixtures, Furniture and
Equipment, (iii) the equipment subject to Computer Leases and (iv) all
reasonably necessary detail concerning the components of the Adjustment
Amount. At the Closing, USTNY shall provide New Trustco and CMC with the Final
Balance Sheets and the Related Schedules in the same forms as the Estimated
Balance Sheets and estimated Related Schedules and shall transfer to New
Trustco all funds, securities, investments, loans and other financial assets
owned or held by or for the account of USTNY, other than (i) the funds and
Eligible Investments identified by USTNY on the schedule prepared by USTNY
pursuant to this paragraph (b) and (ii) such overdrafts or loans as are
reflected on the Final Processing Balance Sheet as Statement Assets. Any such
transfer of funds to New Trustco by USTNY shall be made pursuant to a wire
transfer of immediately available funds.
(c) The amount of retained funds plus the aggregate Liquidation Value of
retained Eligible Assets shall equal the Adjustment Amount.
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(d) The parties recognize that the Statement Assets and Statement
Liabilities reflected on the Final Processing Balance Sheet and the amounts of
assets and liabilities reflected on the Final MFSC Balance Sheet and the Final
UST-WY Balance Sheet may not be entirely accurate. As soon as practicable and
in any event within five Business Days after the Closing Date, New Trustco
shall cause to be prepared (in accordance with the provisions of this
Agreement) and provide to USTNY updated Final Balance Sheets and Related
Schedules which shall correct the amounts of any estimates utilized in
preparing the Final Balance Sheets and correct any bookkeeping errors or
omissions discovered after the Closing that affected the Final Balance Sheets
or the Related Schedules (such updated balance sheets and schedules being
deemed upon delivery to be the Final Balance Sheets and Related Schedules).
USTNY and its accountants shall have the right to discuss the preparation of
the Final Balance Sheets and Related Schedules with New Trustco and its
accountants and shall be allowed access to the work papers used in such
preparation. USTNY or New Trustco, as the case may be, shall (except to the
extent such party institutes a dispute pursuant to Section 8.9), not later
than the 50th day after the Closing Date, pay to the other party in
immediately available funds an amount equal to the net adjustment, if any,
required to be made to the amount of retained funds and Liquidation Value
(determined as of the Closing Date in accordance with the definition of such
term) of retained Eligible Investments on the basis of such Final Balance
Sheets (with such changes therein as USTNY and New Trustco may mutually agree
in writing prior to such 50th day), plus interest on such amount for each day
during the period from the Closing Date to the date of payment at a rate per
annum (calculated on the basis of a 360-day year) equal to the Federal Funds
Rate in effect on such day.
ARTICLE III
The Closing
SECTION 3.1. Closing Date. The Closing of the sale and transfer of the
Acquired Assets and assumption of the Assumed Liabilities shall take place at
the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York
10019, at 10:00 a.m. on the same date as the closing is to occur under the
Merger Agreement.
SECTION 3.2. Transactions To Be Effected at the Closing. At the
Closing:
(a) USTNY shall (x) deliver to New Trustco (i) such appropriately
executed bills of sale, assignments and other instruments of transfer and
conveyance as may be reasonably required effectively to convey the
Acquired Assets to New Trustco in accordance with the provisions of
Article II and (ii) such other documents as may be necessary or
appropriate (A) to demonstrate satisfaction of the conditions and
compliance with the agreements set forth in this Agreement and (B) for
the purposes of more effectively consummating the transactions
contemplated by this Agreement, (y) transfer to New Trustco (by wire
transfer of immediately available funds or in such manner as is customary
in the case of securities and investments) the funds, securities and
investments of USTNY other than the funds and Eligible Investments
specified in the schedule prepared by USTNY pursuant to Section 2.7(b)
plus, in the event any Eligible Investments are so specified, immediately
available funds in an amount equal to one day's interest, calculated at
the Federal Funds Rate in effect on the day prior to the Closing Date, on
the Liquidation Value of such Eligible Investments reflected in the Final
Processing Balance Sheet and (z) deliver to New Trustco (A) an
appropriately executed Post Closing Covenants Agreement, (B) an
appropriately executed Broadway Sublease, (C) an appropriately executed
Services Agreement and (D) an appropriately executed License Agreement.
(b) New Trustco shall deliver to USTNY (i) an appropriately executed
Assumption Agreement, together with one or more other instruments of
assumption as may be reasonably required to effect the assumption of the
Assumed Liabilities in accordance with Article II, (ii) such other
documents as may be necessary or appropriate (A) to demonstrate
satisfaction of the conditions and compliance with the agreements set
forth in this Agreement and (B) for the purpose of more effectively
consummating the transactions contemplated by this Agreement, (iii) an
appropriately executed Post Closing Covenants Agreement, (iv) an
appropriately executed Broadway Sublease, (v) an appropriately executed
Services Agreement and (vi) an appropriately executed License Agreement.
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ARTICLE IV
Representations and Warranties
SECTION 4.1. Representations and Warranties of USTNY. USTNY hereby
represents and warrants to New Trustco as follows:
(a) Organization, Standing and Power. USTNY is a trust company with
banking powers duly organized, validly existing and in good standing
under the banking laws of the State of New York and has all requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
(b) Authority. USTNY has all requisite power and authority to
execute this Agreement and the other Documents to which it is or will be
party (collectively, the "USTNY Documents") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement and the other USTNY Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of USTNY and, to the
extent required, by the stockholders of USTNY. This Agreement has been
duly executed and delivered by USTNY and constitutes, and each of the
other USTNY Documents will be duly executed and delivered by USTNY on or
prior to the Closing Date, and when so executed and delivered will
constitute, a legal, valid and binding obligation of USTNY enforceable
against it in accordance with its terms.
(c) No Conflict. The execution, delivery and performance by USTNY
of this Agreement and the other USTNY Documents (other than the Services
Agreement) will not contravene, violate, result in a breach of or
constitute a default under (i) any provision of applicable law or of the
certificate of incorporation or by-laws of USTNY or its comparable
charter or organizational documents or (ii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to USTNY or any of
its properties or assets.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity is
required (other than Required Consents of such authority in its capacity
as a customer or client in connection with Acquired Assets) in connection
with the making or performance by USTNY of this Agreement or the other
USTNY Documents, except the approval of the Board of Governors of the
Federal Reserve System and the Banking Department of the State of New
York. USTNY has received written advice from the Banking Department of
the State of New York that the transfer of the fiduciary agency and
similar relationships of USTNY which are included in the Acquired Assets
may be transferred to and assumed by New Trustco as contemplated by this
Agreement pursuant to and in accordance with the provisions of Section
604-a of the Banking Law of the State of New York.
SECTION 4.2. Representations and Warranties of New Trustco. New Trustco
hereby represents and warrants to USTNY as follows:
(a) Organization, Standing and Power. New Trustco is a trust
company with banking powers duly organized, validly existing and in good
standing under the laws of the State of New York and has all requisite
corporate power and authority to own, lease and operate its properties
and to carry out its business as now being conducted.
(b) Authority. New Trustco has all requisite power and authority to
execute this Agreement and the other Documents to which it is or will be
a party (collectively, the "New Trustco Documents") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery
of this Agreement and the other New Trustco Documents and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of New Trustco
and, to the extent required, by the stockholders of New Trustco. This
Agreement has been duly executed and delivered by New Trustco and
constitutes, and each other New Trustco Document will be duly executed
and delivered by New Trustco on or prior to the Closing Date, and when so
executed and
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delivered will constitute, a legal, valid and binding obligation of New
Trustco enforceable against it in accordance with its terms.
(c) No Conflict. The execution, delivery and performance by New
Trustco of this Agreement and the other New Trustco Documents will not
contravene, violate, result in a breach of or constitute a default under
(i) any provision of applicable law or of the certificate of
incorporation or by-laws of New Trustco or its comparable charter or
organizational documents and (ii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to New Trustco or any of
its properties or assets.
(d) Approvals. No consent, approval, order, authorization of, or
registration, declaration or filing with, any Governmental Entity is
required (other than in its capacity as a customer or a client in
connection with Acquired Assets) in connection with the making or
performance by New Trustco of this Agreement or the other New Trustco
Documents, or the acquisition of the Acquired Assets and assumption of
the Assumed Liabilities as contemplated hereby, except the approval of
the Board of Governors of the Federal Reserve System and the Banking
Department of the State of New York.
ARTICLE V
Covenants
SECTION 5.1. Items in Transit. USTNY shall retain the benefit of and
shall bear the risk of all Uncollected Items and all other items which will
result in Deposits of the Processing Business which are in transit as of the
close of business on the day immediately preceding the Closing Date. Any
payments, transfers of securities, deposits, checks or other items relating to
or constituting part of the Acquired Assets (including the Transferred
Processing Receivables) or Assumed Liabilities, or otherwise paid or delivered
for the account or benefit of the Acquired Business or treasury operations of
USTNY (including any such items in transit or in the process of collection at
the time of the Closing) shall be for the account and benefit of New Trustco.
In furtherance of the foregoing, if funds, securities or other items payable
or deliverable to or for the account of one party in accordance with the
foregoing are received by the other party at any time on or after the Closing
Date, such receiving party shall forthwith remit such funds, securities or
other items to the other party. New Trustco shall be responsible for the
payment of any check, draft, payment order or similar item originating from
businesses of USTNY other than the Processing Business and payable by or drawn
upon USTNY which have not, as of the close of business on the day immediately
preceding the Closing Date, been paid or charged against an account of USTNY.
New Trustco shall forthwith reimburse USTNY for the amount of any item
referred to in the immediately preceding sentence which is paid by or charged
to an account of USTNY on or after the Closing Date. Funds owed to either
party pursuant to this Section shall bear interest (calculated on the basis of
a 360-day year) at the Federal Funds Rate from the Business Day of receipt, in
the case of same day funds, or the next Business Day, in the case of next day
funds, by a party of such funds (or payment by USTNY of funds for the account
of New Trustco) until the date of payment of such funds to the party entitled
thereto. All payments pursuant to this Section shall be made in immediately
available funds in New York City or, in the case of payments made with respect
to items received by mistake, of the same tenor as the receipt. Each party
shall provide the other with such information and evidence of transactions as
may be necessary to effectuate the foregoing provisions.
SECTION 5.2. Further Assurances. (a) Subject to the provisions of
Section 2.6, on and after the Closing Date, USTNY shall, with full
reimbursement of its reasonable actual costs and expenses (including
attorneys' fees and employee salaries and allocable benefits, but not
overhead), (i) give such further assurances to New Trustco and shall execute,
acknowledge and deliver all such acknowledgements and other instruments and
take such further actions as may be reasonably necessary or appropriate
effectively to vest in New Trustco the full legal and equitable title to the
Acquired Assets and (ii) use its reasonable best efforts to assist New Trustco
in the orderly transition of the operations acquired by New Trustco. Nothing
in this Section shall be construed to require USTNY to incur, without
reimbursement from New Trustco, any costs or expenses in connection with any
such undertakings.
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(b) Subject to the provisions of Section 2.6, on and after the Closing
Date, New Trustco shall, at its expense (except as otherwise specifically
provided by the Documents), (i) give such further assurances to USTNY and
shall execute, acknowledge and deliver all such acknowledgements and other
instruments and take such further actions as may be necessary to relieve and
discharge USTNY effectively from the Assumed Liabilities and (ii) use its
reasonable best efforts to assist USTNY in the transfer to New Trustco of the
Acquired Assets and Assumed Liabilities.
SECTION 5.3. Certain Understandings. New Trustco acknowledges that
neither USTNY nor any other person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Acquired Assets or Assumed Liabilities not included in this
Agreement, the Documents or the schedules hereto and thereto. New Trustco
acknowledges that it will acquire the Acquired Assets without any
representation or warranty as to merchantability or fitness for any particular
purpose, in an "as is" condition and on a "where is" basis.
SECTION 5.4. Use of Name. From and after the Closing Date, USTNY (i)
shall promptly change the name on all documents, stationery and facilities
relating to the Processing Business and the Related Back Office to a name that
is not in any way similar to USTNY's name (or any name or initial confusingly
similar to that of any existing Affiliates of New Trustco). It is understood
that USTNY is transferring to New Trustco all right, title and interest in and
to, and all rights to use, USTNY's name (or any name or initial similar
thereto or of any existing Affiliates of USTNY). Nothing in this Section shall
require USTNY to undertake to reissue deposits or rewrite outstanding loans,
or other agreements or other documents retained by USTNY on the Closing Date
except in the ordinary course of business, it being understood, however, that
reasonable efforts will be used to change names in accordance with the
provisions of the first sentence of this Section.
SECTION 5.5. Transferred Processing Receivables. From and after the
Closing Date, USTNY will use its best efforts to assist New Trustco in the
collection of the Transferred Processing Receivables; provided, however, that
the foregoing shall not require USTNY to incur any actual cost or expense not
reimbursed by New Trustco or to conduct litigation (but USTNY shall cooperate
in such ways as may reasonably be requested by New Trustco, at New Trustco's
expense, in connection with any litigation commenced by New Trustco to collect
such Transferred Processing Receivables).
ARTICLE VI
Conditions Precedent
SECTION 6.1. Conditions to Each Party's Obligation. The obligation of
New Trustco to accept the Acquired Assets and assume the Assumed Liabilities
and the obligation of USTNY to assign, convey and deliver the Acquired Assets
and Assumed Liabilities to New Trustco shall be subject to the satisfaction
(or waiver by such party, in the case of USTNY only with the consent of CMC)
prior to the Closing of the following conditions:
(a) Regulatory Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any governmental authority necessary for the
consummation of the transactions contemplated by this Agreement shall
have been obtained or filed or shall have occurred.
(b) No Litigation, Injunctions or Restraints. There shall be no
suit, action, or other proceeding pending which has been initiated by any
governmental authority seeking to restrain, prohibit, invalidate or set
aside in whole or in part the consummation of the transactions
contemplated by this Agreement. No temporary restraining order,
preliminary or permanent injunction or other legal restraint or
prohibition preventing the consummation of the transactions contemplated
by this Agreement shall be in effect.
(c) Merger Agreement. At the time of the Closing, all conditions to
the consummation of the transactions contemplated by the Merger Agreement
(other than the closings hereunder and under the Distribution Agreement)
shall have been satisfied (or waived by the party for whose benefit such
condition exists).
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SECTION 6.2. Conditions to Obligations of New Trustco. The obligation
of New Trustco to accept the Acquired Assets and assume the Assumed
Liabilities shall be subject to the satisfaction prior to the Closing of each
of the following conditions, unless waived by New Trustco:
(a) Representations and Warranties. The representations and
warranties of USTNY set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing as though made on and as of the Closing (or on or as of the date
when made in the case of any representation or warranty which
specifically relates to an earlier date), except as otherwise
specifically contemplated by this Agreement, and New Trustco shall have
received a certificate signed by an authorized officer of USTNY, dated
the Closing Date, to such effect.
(b) Performance of Obligations of USTNY. USTNY shall have performed
or complied in all material respects with all obligations, conditions and
covenants required to be performed or complied with by it under this
Agreement at or prior to the Closing, and New Trustco shall have received
a certificate signed by an authorized officer of USTNY, dated the Closing
Date, to such effect.
(c) Bill of Sale. USTNY shall have delivered to New Trustco an
appropriate bill of sale conveying the personal property included in the
Acquired Assets, and such other assignments, instruments or documents as
may be necessary or appropriate to confirm the transfer and assignment of
the Acquired Assets, in each case in form and substance reasonably
satisfactory to New Trustco.
(d) Other Agreements. Each of the Documents shall have been
executed and delivered by the parties thereto (other than New Trustco),
and shall, subject to consummation of the transactions contemplated by
the Merger Agreement, the Distribution Agreement and this Agreement, be
effective and in force.
(e) Name Change. USTNY shall have amended its organization
certificate to change its name.
SECTION 6.3. Conditions to the Obligation of USTNY. The obligation of
USTNY to assign, convey, and deliver the Acquired Assets and transfer the
Assumed Liabilities is subject to the satisfaction on and as of the Closing
Date of each of the following conditions, unless waived by USTNY (with the
consent of CMC):
(a) Representations and Warranties. The representations and
warranties of New Trustco set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date (or on
or as of the date when made in the case of any representation or warranty
which specifically relates to an earlier date), except as otherwise
specifically contemplated by this Agreement, and USTNY shall have
received a certificate signed by an authorized officer of New Trustco,
dated the Closing Date, to such effect.
(b) Performance of Obligations of New Trustco. New Trustco shall
have performed or complied in all material respects with all obligations
required to be performed or complied with by it under this Agreement at
or prior to the Closing, and USTNY shall have received a certificate
signed by an authorized officer of New Trustco, dated the Closing Date,
to such effect.
(c) Assumption Agreement. New Trustco shall have executed and
delivered to USTNY the Assumption Agreement.
(d) Other Agreements. Each of the Documents shall have been
executed and delivered by the parties thereto (other than USTNY), and
shall, subject to consummation of the transactions contemplated by the
Merger Agreement, the Distribution Agreement and this Agreement, be
effective and in force.
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ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.1. Termination. Notwithstanding anything to the contrary in
this Agreement, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing by mutual
written consent of USTNY and New Trustco in the event the Merger Agreement is
terminated by any party thereto in accordance with the terms thereof.
SECTION 7.2. Amendments and Waivers. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto and consented to by CMC. By an instrument in writing, USTNY or New
Trustco may waive compliance by the other party with any term or provision of
this Agreement that such other party was or is obligated to comply with or
perform; provided that no such waiver by USTNY shall be effective unless
consented to by CMC.
ARTICLE VIII
General Provisions
SECTION 8.1. Notices. Any notice, request, instruction or other
document to be given hereunder by any party to any other party shall be in
writing and shall be deemed to have been duly given (i) on the first Business
Day occurring on or after the date of transmission if transmitted by facsimile
(upon confirmation of receipt by journal or report generated by the facsimile
machine of the party giving such notice), (ii) on the first Business Day
occurring on or after the date of delivery if delivered personally or (iii) on
the first Business Day following the date of dispatch if dispatched by Federal
Express or other next-day courier service. All notices hereunder shall be
given as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
(a) if to USTNY, to
c/o The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022
Attention: William H. Satchell
and
(b) if to New Trustco, to
c/o U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attention: Maureen Scannell Bateman
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: B. Robbins Kiessling
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SECTION 8.2. Interpretation. When a reference is made in this Agreement
to a Section, Schedule or Exhibit, such reference shall be to a Section,
Schedule or Exhibit of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "included", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Agreement shall have the
meanings determined by generally accepted accounting principles.
SECTION 8.3. Survival of Representations. The representations and
warranties of New Trustco contained in Article IV of this Agreement shall
survive the closing and shall terminate at the close of business two years
following the Closing Date. The representations and warranties of USTNY
contained in Article IV of this Agreement shall terminate on the Closing Date.
SECTION 8.4. Severability. If any provision of this Agreement, or the
application thereof to any person, place or circumstances, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect; provided,
however, that in the event that the terms and conditions of this Agreement are
materially altered as a result of this Section 8.4, the parties will
renegotiate the terms and conditions of this Agreement to resolve any
inequities.
SECTION 8.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart.
SECTION 8.6. Entire Agreement; Third Party Beneficiaries. This
Agreement, the Documents and the documents and instruments referred to herein
and therein, or otherwise required pursuant to any Document to be delivered in
connection with the consummation of the transactions contemplated by the
Documents, (a) constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof (except the Confidentiality Agreement
dated August 17, 1994 between CMC and the Company and certain letter
agreements executed simultaneously with the Merger Agreement) and (b) except
as expressly set forth herein, this Agreement is not intended to confer upon
any person other than the parties hereto and CMC any rights or remedies
hereunder.
SECTION 8.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflict
of laws.
SECTION 8.8. Consent to Jurisdiction; Waiver of Jury Trial. (a) Each of
USTNY and New Trustco irrevocably submits to the non-exclusive jurisdiction of
(i) the Supreme Court of the State of New York, New York County and (ii) the
United States District Court for the Southern District of New York located in
the borough of Manhattan in the City of New York, for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each of USTNY and New Trustco further agrees
that any service of process, summons, notice or document given in accordance
with Section 8.1 shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted
to jurisdiction as set forth above in the immediately preceding sentence. Each
of USTNY and New Trustco irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in (i) the Supreme Court of
the State of New York, New York County or (ii) the United States District
Court for the Southern District of New York, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
(b) Each of New Trustco and USTNY hereby waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in
respect of any litigation directly or indirectly arising out of, under or
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in connection with this Agreement or any of the other Documents. Each of New
Trustco and USTNY (i) certifies that no representative, agent or attorney of
the other party has represented, expressly or otherwise, that such other party
would not, in the event of litigation, seek to enforce the foregoing waiver
and (ii) acknowledges that it and the other party hereto has been induced to
enter into this Agreement and the other Documents, as applicable, by, among
other things, the mutual waivers and certifications in this Section 8.8(b).
SECTION 8.9. Certain Disputes. (a) Following the delivery of the Final
Balance Sheets and Related Schedules to USTNY, USTNY shall review such balance
sheets and schedules and New Trustco and its accountants shall permit USTNY
and its accountants full access at all reasonable times to all of the working
papers, analyses and schedules utilized or prepared in connection with the
preparation of such balance sheets and schedules. On or before the 50th day
after the Closing Date, USTNY shall, in a written notice to New Trustco,
either accept the Final Balance Sheets and Related Schedules or describe in
reasonable detail any proposed adjustments to such Final Balance Sheets and
Related Schedules and the reasons therefor, and shall include pertinent
calculations. Thereafter, USTNY and its accountants shall permit New Trustco
full access at all reasonable times to all of the working papers, analyses and
schedules of USTNY and its accountants (and relevant personnel) utilized or
prepared in connection with the preparation of such notices of proposed
adjustments. If USTNY shall not give such notice of proposed adjustments
within such 50-day period, USTNY will be deemed irrevocably to have accepted
the Final Balance Sheets and Related Schedules. In the event that USTNY and
New Trustco disagree as to any item or amount (or the computation or
determination in accordance with the terms of this Agreement of any item or
amount) reflected, set forth in or relating to the Final Balance Sheets or
Related Schedules, or to the calculation of the Adjustment Amount as
contemplated hereby, then any payments at the time required to be made under
this Agreement shall be made on the basis of such items or amounts as to which
the parties do not disagree. Either party hereto shall thereupon be entitled
to request Ernst & Young (or, if said firm shall have a conflict due to a
relationship with CMC or New Holdings or any of their subsidiaries or shall be
unwilling to act thereunder, such other firm of nationally recognized
independent accountants as USTNY and New Trustco may jointly designate which
does not at the time have a material relationship with USTNY, New Trustco or
their Affiliates) to determine, in accordance with the provisions of this
Agreement, such disputed item or amount (or the computations or determination
thereof). Any such request shall be in writing and shall specify with
particularity the disputed items, amounts or computations being submitted for
determination, and the requesting party shall furnish the other party hereto
with a copy of such request at the same time it is submitted to the
independent accountants. The firm of independent accountants to which any
dispute is referred hereunder shall within 30 days determine, in accordance
with the provisions of this Agreement, the proper amount of any disputed item
or other amount, or the computation thereof, and such determination shall be
final, conclusive and binding on all parties hereto. In acting pursuant to
this Agreement, such firm of independent accountants shall be entitled to the
privileges and immunities of arbitrators. USTNY and New Trustco shall
cooperate fully in assisting such firm in making any determination requested
hereunder, including giving such firm access to all files, books and records
relevant thereto and providing such other information as such firm may
reasonably request in connection with the determination to be made by it
hereunder. The fees and disbursements in connection with such firm's
determination shall be borne equally by USTNY and New Trustco unless the
determination requires a party to make an additional payment in excess of
$50,000, in which case the party required to make such payment shall bear and
be responsible for the full amount of fees and disbursements of such firm. In
the event that a determination by independent accountants pursuant to this
Section requires any previously suspended payment to be made by any party,
such payment shall be made promptly (and in any event within ten Business
Days) after receipt by such party from such independent accountants of written
notice of such determination. Such firm of independent accountants shall
promptly and substantially simultaneously notify USTNY and New Trustco in
writing of any determination by it hereunder. New Trustco and USTNY agree that
the settlement of amounts payable pursuant to this Section will not be
considered to be a claim for indemnification pursuant to the Post Closing
Covenants Agreement.
(b) Any amount payable by any party to another party pursuant to Section
8.9(a) shall be paid in immediately available funds in New York City and shall
bear interest (calculated on the basis of a 360-day year) on each day from the
date such amount would originally have been required to be paid hereunder had
no
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dispute over such amount existed to the date of payment at the Federal Funds
Rate in effect for each such day during the period involved.
(c) The party having control of the relevant records and financial
information used in connection with any adjustment provided for in this
Section shall certify the accuracy of such records and financial information
if so requested by the other party.
SECTION 8.10. Assignment. Neither this Agreement nor any of the rights,
interest or obligations hereunder shall be assigned by either party hereto
without the prior written consent of the other party, except that USTNY may
assign its rights, interest and obligations under this Agreement to any
successor by merger or any entity that acquires substantially all of its
assets. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors (including any bank or trust company which is a
successor by merger to USTNY) and assigns.
[Remainder Of Page Intentionally Left Blank.]
C-24
<PAGE>
IN WITNESS WHEREOF, USTNY and New Trustco have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
UNITED STATES TRUST COMPANY
OF NEW YORK
By:
----------------------------------
Name:
Title:
NEW U.S. TRUST COMPANY OF NEW YORK
By:
----------------------------------
Name:
Title:
C-25
<PAGE>
APPENDIX D
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POST CLOSING COVENANTS
AGREEMENT
Dated as of , 1995
among
THE CHASE MANHATTAN CORPORATION
U.S. TRUST CORPORATION
UNITED STATES TRUST COMPANY OF NEW YORK
NEW USTC HOLDINGS CORPORATION
and
NEW U.S. TRUST COMPANY OF NEW YORK
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- ------------------------------------------------------------------------------
<PAGE>
POST CLOSING COVENANTS AGREEMENT dated as of , 1995 (the
"Agreement"), among THE CHASE MANHATTAN CORPORATION, a Delaware corporation
("CMC"), U.S. TRUST CORPORATION, a New York corporation (the "Company"),
UNITED STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and
trust company ("Old USTNY"), NEW USTC HOLDINGS CORPORATION, a New York
corporation ("New Holdings") and NEW U.S. TRUST COMPANY OF NEW YORK, a New
York State chartered bank and trust company and wholly owned subsidiary of New
Holdings ("New Trustco").
R E C I T A L S
WHEREAS, New Holdings and New Trustco are, concurrently with the
execution of this Agreement, entering into an Agreement and Plan of
Distribution dated as of the date hereof ("Distribution Agreement");
WHEREAS, Old USTNY and New Trustco are, concurrently with the execution
of this Agreement, entering into a Contribution and Assumption Agreement dated
as of the date hereof ("Contribution Agreement");
WHEREAS, the consummation of the transactions contemplated by the
Distribution Agreement and the Contribution Agreement is a condition precedent
of the Merger (as defined below);
WHEREAS, CMC and the Company have entered into an Agreement and Plan of
Merger (the "Merger Agreement") dated as of November 18, 1994, providing, upon
the terms and subject to the conditions contained therein, for the merger (the
"Merger") of the Company with and into CMC immediately after the consummation
of the Contribution and the Distribution;
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the willingness of the parties to the Contribution
Agreement, the Distribution Agreement and the Merger Agreement to consummate
the Contribution, the Distribution and the Merger;
WHEREAS, CMC desires to enter into this Agreement in consideration for,
among other things, the satisfaction of the aforementioned conditions to the
Merger; and
WHEREAS, the parties to this Agreement have determined that it is
necessary and desirable to set forth certain agreements that will govern
various indemnity matters and other matters that may arise following the
Distribution and the Merger.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, and the above recited consideration and
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Agreement
without definitions will have the meanings ascribed to such terms in the
Merger Agreement, and accounting terms used herein and accounting
determinations made hereunder will be used or made as provided in the Merger
Agreement. The following terms shall have the following definitions:
"Accounting and Valuation Services" shall have the meaning assigned
to such term in Section 7.
"Administration Services" shall have the meaning assigned to such
term in Section 7.
"Chase Parties" means CMC, the Company and Old USTNY.
"Company Employees" means all employees of Old USTNY and its
affiliates prior to the Effective Time.
"Custody Services" shall have the meaning assigned to such term in
Section 7.
"Indemnified Party" shall have the meaning assigned to such term in
Section 4.
"Indemnifying Party" shall have the meaning assigned to such term in
Section 4.
<PAGE>
"Losses" means any liabilities, claims, actions, suits, proceedings,
judgments, losses, damages, deficiencies and expenses (including
reasonable attorney's fees and expenses of investigation).
"New UST Parties" means New Holdings and New Trustco.
"Third Party Claim" shall have the meaning assigned to such term in
Section 4.
"Transfer Agent Services" shall have the meaning assigned to such
term in Section 7.
"Trust Services" shall have the meaning assigned to such term in
Section 7.
SECTION 2. Indemnification.
(a) From and after the Effective Time, New Holdings agrees to
indemnify and hold harmless the Chase Parties and their respective
directors, officers, employees, affiliates, agents and assigns, as
applicable, against any and all Losses, as incurred, for or on account of
or arising from or in connection with or otherwise with respect to:
(i) any breach of or any inaccuracy in any representation or
warranty of any of the New UST Parties, the Company, Old USTNY and
their subsidiaries contained in any of the Documents (as defined in
the Distribution Agreement);
(ii) any breach or nonperformance of any covenant of (A) the New
UST Parties or any of their subsidiaries contained in the Documents
whether to be performed before or after the Effective Time or (B) the
Company or Old USTNY or any of their subsidiaries contained in the
Documents to be performed prior to the Effective Time;
(iii) any Acquired Asset or Assumed Liability (each as defined in
the Contribution Agreement and the Distribution Agreement);
(iv) any Delayed Asset or Delayed Liability (each as defined in
the Contribution Agreement);
(v) any regulatory or compliance violation that arises out of
events, actions or omissions to act of the Company or Old USTNY
occurring prior to the Effective Time and adversely affects a Customer
account or any entity that has an interest in such Customer account;
(vi) except for the Retained Liabilities (as defined in the
Contribution Agreement), MFSC Retained Liabilities, UST-WY Retained
Liabilities (each as defined in the Distribution Agreement) and
actions relating to the Processing Business, claims of any
shareholders, directors, officers, employees or agents of the Company
and its subsidiaries arising from the execution by the Company or Old
USTNY of the Documents and the consummation after the Effective Time
of transactions in accordance with the terms of the Documents;
(vii) any untrue statement or alleged untrue statement of any
material fact contained in the Proxy Statement, the Registration
Statement on Form S-4, the Registration Statement on Form 10 and, if
necessary, the Registration Statement on Form S-1 (the Form S-4, the
Form 10 and the Form S-1 collectively, the "Registration Statements")
or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in
each case to the extent based upon information with respect to the New
UST Parties, the Company or Old USTNY furnished in writing by or on
behalf of the New UST Parties, or at any time prior to the Effective
Time, the Company or Old USTNY, expressly for use in the Proxy
Statement, the Registration Statements or any amendment or supplement
thereto; and
(viii) any liability arising (A) from a claim to enforce, or to
recover tort liability arising out of, any federal, state or local
law, rule or regulation relating to the protection of the environment
with respect to any facility, site, location or business (whether past
or present and whether active or inactive) owned, operated or leased
by the Company or Old USTNY or any of their subsidiaries prior to the
Effective Date and (B) as a result of conditions existing during or
prior to the period of
D-2
<PAGE>
time such facility, site, location or business was owned, operated or
leased by the Company or Old USTNY or any of their subsidiaries.
(b) From and after the Effective Time, New Trustco agrees to
indemnify and hold harmless the Chase Parties and their respective
directors, officers, employees, affiliates, agents and assigns, as
applicable, against any and all Losses, as incurred, for or on account of
or arising from or in connection with or otherwise with respect to:
(i) any breach of or any inaccuracy in any representation or
warranty of New Trustco or Old USTNY and their subsidiaries contained
in any of the Documents;
(ii) any breach or nonperformance of any covenant of (A) New
Trustco contained in the Documents whether to be performed before or
after the Effective Time or (B) Old USTNY contained in the Documents
to be performed prior to the Effective Time;
(iii) any Acquired Asset or Assumed Liability (each as defined in
the Contribution Agreement);
(iv) any Delayed Asset or Delayed Liability (each as defined in
the Contribution Agreement);
(v) any regulatory or compliance violation that arises out of
events, actions or omissions to act of Old USTNY occurring prior to
the Effective Time and adversely affects a Customer account or any
entity with an interest in such Customer account; and
(vi) any liability arising (A) from a claim to enforce, or to
recover tort liability arising out of, any federal, state or local
law, rule or regulation relating to the protection of the environment
with respect to any facility, site, location or business (whether past
or present and whether active or inactive) owned, operated or leased
by Old USTNY prior to the Effective Date and (B) as a result of
conditions existing during or prior to the period of time such
facility, site, location or business was owned, operated or leased by
Old USTNY.
(c) CMC agrees to indemnify and hold harmless the New UST Parties
and their respective directors, officers, employees, affiliates, agents
and assigns, as applicable, against any and all Losses, as incurred, for
or on account of or arising from or in connection with or otherwise with
respect to:
(i) any breach of or inaccuracy in any representation or warranty
of CMC contained in any of the Documents;
(ii) any breach or nonperformance of any covenant of (A) CMC
contained in the Documents whether to be performed before or after the
Effective Time or (B) the Company or Old USTNY or any of their
subsidiaries contained in the Documents to be performed after the
Effective Time;
(iii) except for Losses as to which any of the Chase Parties are
entitled to indemnification pursuant to the terms of Section 2(a)
hereof, any Retained Asset (as defined in the Contribution Agreement),
any Retained Liability, any MFSC Retained Liability and any UST-WY
Retained Liability; and
(iv) any untrue statement or alleged untrue statement of any
material fact contained in the Proxy Statement, the Registration
Statements or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; but
only in each case to the extent based upon information with respect to
the Chase Parties furnished in writing by or on behalf of CMC or, at
any time after the Effective Time, the Company or Old USTNY, expressly
for use in the Proxy Statement, the Registration Statements or any
amendment or supplement thereto.
D-3
<PAGE>
(d) Old USTNY agrees to indemnify and hold harmless the New UST
Parties and their respective directors, officers, employees, affiliates,
agents and assigns, as applicable, against any and all Losses, as
incurred, for or on account of or arising from or in connection with or
otherwise with respect to:
(i) any breach or nonperformance of any covenant of Old USTNY
contained in the Documents to be performed after the Effective Time;
and
(ii) except for Losses as to which any of the Chase Parties are
entitled to indemnification pursuant to the terms of Section 2(a)
hereof, any Retained Asset or any Retained Liability.
SECTION 3. Termination of Indemnification. The obligations to indemnify
and hold harmless any party (a) pursuant to Sections 2(a)(i), 2(b)(i) and
2(c)(i) shall terminate on the second anniversary of the date hereof, (b)
pursuant to Sections 2(a)(v) and 2(b)(v) shall terminate on the first
anniversary of the date hereof and (c) pursuant to the other clauses of
Sections 2(a), 2(b) and 2(c) and clause 2(d) shall not terminate; provided,
however, that such obligations to indemnify and hold harmless shall not
terminate with respect to any item as to which the person to be indemnified
shall have, before the expiration of the applicable period, previously made a
claim by delivering a notice (pursuant to Section 4 hereof in the case of
Third Party Claims) specifically identifying such claim to the party providing
the indemnification.
SECTION 4. Procedure. (a) Any party seeking any indemnification
provided for under this Agreement (the "Indemnified Party") in respect of,
arising out of or involving a claim made by any person against the Indemnified
Party (a "Third Party Claim"), shall notify in writing (and to the extent
received, deliver copies of all related notices and documents (including court
papers) to) the party from whom indemnification is sought (the "Indemnifying
Party") of the Third Party Claim within fifteen Business Days after receipt by
such Indemnified Party of written notice of the Third Party Claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure (except that
the Indemnifying Party shall not be liable for any expenses incurred during
the period in which the Indemnified Party failed to give such notice if such
Indemnified Party failed to give such notice within the allotted fifteen
Business Days). Thereafter, the Indemnified Party shall deliver to the
Indemnifying Party, within five Business Days' time after the Indemnified
Party's receipt thereof, copies of all other notices and documents (including
court papers) received by the Indemnified Party relating to the Third Party
Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party shall be entitled to participate in the defense thereof
and, if it so chooses (except as provided in Section 4(c)), to assume the
defense thereof with experienced counsel selected by the Indemnifying Party
and reasonably satisfactory to the Indemnified Party. Should the Indemnifying
Party so elect to assume the defense of a Third Party Claim, the Indemnifying
Party shall not be liable to the Indemnified Party for any legal expenses
(except as provided below and in Section 4(c)) subsequently incurred by the
Indemnified Party in connection with the defense thereof. Notwithstanding the
Indemnifying Party's election to assume the defense of such Third Party Claim,
the Indemnified Party shall have the right to employ separate counsel and to
participate in the defense of such action at its own expense; provided,
however, that the Indemnifying Party shall bear the reasonable fees, costs,
and expenses of such separate counsel if (i) the use of counsel chosen by the
Indemnifying Party to represent the Indemnified Party would present such
counsel with a conflict of interest that would preclude such counsel from
representing the Indemnified Party pursuant to legal canons of ethics or other
applicable law; (ii) the Indemnifying Party shall not have employed counsel
reasonably satisfactory to the Indemnified Party to represent it within 30
days after notice to the Indemnifying Party of the institution of such Third
Party Claim or (iii) the Indemnifying Party shall authorize the Indemnified
Party to employ separate counsel at the Indemnifying Party's expense. If the
Indemnifying Party chooses to defend or prosecute a Third Party Claim, each
party hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the Indemnifying Party's
request) the provision to the Indemnifying Party of records and information
which are reasonably relevant to such Third Party Claim, and making employees
available (subject to reimbursement by the Indemnifying Party of actual
expenses incurred therewith) on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. If
the Indemnifying Party chooses to defend or prosecute any Third Party Claim,
the
D-4
<PAGE>
Indemnified Party shall agree to any settlement, compromise or discharge of
such Third Party Claim which the Indemnifying Party may recommend and which by
its terms obligates the Indemnifying Party to pay the full amount of the
liability in connection with such Third Party Claim and releases the
Indemnified Party completely in connection with such Third Party Claim.
Whether or not the Indemnifying Party shall have assumed the defense of a
Third Party Claim, so long as the Indemnifying Party acknowledges in writing
its obligation to indemnify the Indemnified Party with respect to the
applicable claims, the Indemnified Party shall not admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without
the Indemnifying Party's prior written consent, which consent may not be
withheld unless, in the Indemnifying Party's good-faith judgment, such
settlement, compromise or discharge is unreasonable in light of such Third
Party Claim against, and defenses available to, the Indemnified Party.
(c) Notwithstanding anything set forth in Section 4(b) to the contrary,
in the event an Indemnified Party reasonably believes and so notifies the
Indemnifying Party in writing that the applicable claim, even if fully
indemnified for, is reasonably likely to have a material adverse effect on the
Indemnified Party's business, financial condition or results of operations,
then the Indemnifying Party shall not have the right to assume the defense of
such claim but shall have the right to employ separate counsel and to
participate in the defense of such action at its own expense. In such an
event, the Indemnified Party and its counsel shall consult, wherever
reasonably practicable, with the Indemnifying Party and its counsel with
respect to the status of the claim and any related litigation.
SECTION 5. Limitation on Indemnification. Notwithstanding anything
herein to the contrary, neither the New UST Parties nor CMC or Old USTNY shall
have any liability pursuant to Sections 2(a) and 2(b) or 2(c) and 2(d),
respectively, unless the aggregate amount of all Losses relating thereto
exceeds on a cumulative basis an amount equal to $500,000 (the "Deductible
Amount"), and then only to the extent of any such excess; provided, however,
that any Loss arising from a single indemnification claim (including any
single Third Party Claim) in an amount greater than $50,000 shall not be
subject to the limitation of this Section 5 and shall be excluded from the
determination of the Deductible Amount; provided further, however, that
amounts to be indemnified pursuant to Section 2.3 of the Contribution
Agreement and Section 4.4 of the Distribution Agreement shall not be subject
to the limitation of this Section 5 and shall be excluded from the
determination of the Deductible Amount. In no event shall any party be
entitled to indemnification for any Loss pursuant to Section 2 to the extent
such party has been indemnified for such Loss pursuant to any other Document.
SECTION 6. Minimum Net Worth. Until the later of (a) three years from
the date hereof or (b) the date when the applicable statutes of limitations
with respect to all Federal income tax liabilities of the Company for periods
ending prior to or on the Closing Date have run, New Holdings shall (i) as of
any date of determination, maintain consolidated shareholders' equity of not
less than the lesser of (x) $150,000,000 and (y) the greater of (1) 95% of the
consolidated shareholders' equity of New Holdings at January 1, 1996, and (2)
the sum of (A) $135,000,000 plus, (B) on and after January 1, 1997, the
product of (I) $7,500,000 multiplied by (II) the number of the most recent
preceding anniversary of December 31, 1995 and (ii) be a "well capitalized"
bank holding company within the meaning of the regulations of the Board of
Governors of the Federal Reserve System (as in effect on the date hereof);
except that, so long as its Tier 1 capital leverage ratio (determined in
accordance with regulations in effect on the date hereof) is 4.5% or above,
New Holdings shall not be deemed to be less than "well capitalized" solely
because its Tier 1 capital leverage ratio is less than 5%; provided, however,
that on or before September 30, 1995, the denominator used in determining New
Holding's Tier 1 capital leverage ratio shall be the book value of the average
total consolidated assets (net of the allowance for loan losses) of New
Holdings following the Distribution.
SECTION 7. Noncompetition and Nonsolicitation; Proprietary Information.
(a) Until the fourth anniversary of the Effective Time, neither New
Holdings nor any subsidiary or affiliate of New Holdings shall (i) in any
way, directly or indirectly, engage in the Processing Business in the
United States or Canada, or own, manage, operate, control or have an
interest greater than 5% of the voting stock or 25% of the total equity
in any enterprise which engages, directly or indirectly, in the
Processing Business in the United States or Canada; provided, however,
that nothing contained herein
D-5
<PAGE>
shall prohibit New Holdings or any subsidiary or affiliate of New
Holdings from directly or indirectly acquiring a corporation or other
entity or affiliated group of corporations or other entities that is
engaged in the Processing Business (an "Acquired Person") so long as
during the twelve month period ending on the last day of the month
immediately preceding the month of such acquisition, revenues earned from
the Processing Business by such Acquired Person constituted no more than
15% of the aggregate revenues of such Acquired Person; provided, however,
than an Acquired Person shall be subject to this Section 7 only with
respect to customers of such Acquired Person who were not customers on
the date immediately preceding the date such Acquired Person became an
affiliate of New Holdings; (ii) provide any Customer or Institutional
Client with any of the following items in connection with any assets held
in custody or safekeeping by CMC or any affiliate of CMC, except as
provided in the Services Agreement: (A) securities lending and investment
of related collateral, (B) securities and commodities clearing services
or (C) foreign exchange services or (iii) provide any Customer with any
of the following items in connection with any assets with respect to
which CMC or any affiliate of CMC provides Processing Services: (A) cash
balance sweep services, (B) except with respect to assets for which New
Holdings or any subsidiary of New Holdings exercises investment
management for Customers listed on Schedule 7.1, Cash Management or (C)
extensions of credit to investment companies and other commingled
investment funds.
(b) Until the third anniversary of the Effective Time, except as
provided in Section 5.8 of the Merger Agreement, neither New Holdings nor
any of its subsidiaries will solicit for employment any person who is, or
after the Effective Time will be, a Retained Employee (other than a
Retained Employee whose employment with CMC and its affiliates or any
successor thereto has been terminated or who has been given notice of
termination) or seek to persuade any such Retained Employee to
discontinue his or her employment with CMC or any of its subsidiaries.
(c) From and after the Effective Time, except as required by law,
neither New Holdings nor any of its subsidiaries nor any of their
respective representatives shall, at any time, make use of, divulge or
otherwise disclose, directly or indirectly, any trade secret,
confidential information or other proprietary data (including any
customer list, employee data, record or financial information
constituting a trade secret) concerning the Processing Business and the
Related Back Office (as defined in the Contribution Agreement) including,
without limitation, the business or policies of Old USTNY and the Company
or any of their respective subsidiaries, other than information that is
an Acquired Asset or a Delayed Asset; provided, however, that nothing in
the foregoing shall preclude New Holdings or any subsidiary or affiliate
of New Holdings from providing any of the services not specifically
prohibited herein or from engaging in the Processing Business from and
after the fourth anniversary of the Effective Time.
(d) In the event that there is a direct or indirect Change of
Control, New Holdings and New Trustco shall cease to be bound by Section
7(a), and upon six months notice by CMC, CMC may treat such Change of
Control as a termination of the Services Agreement by New Trustco and
cease providing Processing Services under the Services Agreement on or
after six months after the Change of Control.
(e) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to
Section 2 and other remedies at law would be inadequate in the case of
any breach of the covenants contained in Sections 7(a), 7(b), and 7(c)
and each of New Holdings and New Trustco agrees that each of CMC and the
Company shall be entitled to equitable relief, including the remedy of
specific performance, with respect to any breach or attempted breach of
such covenants.
(f) For the purposes of this Section 7:
"Accounting and Valuation Services" shall mean all portfolio
accounting and valuation services including but not limited to the
financial and tax recordkeeping related to income, disbursements,
corporate actions, interest, dividends and expense of customers,
including the calculation of total assets, net assets, net asset value
per share or unit, the preparation of financial statements and related
functions.
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"Administration Services" shall mean any or all of the following:
(i) the maintenance of corporate, trust or partnership books and
records, including Accounting and Valuation Services and Transfer
Agent Services, (ii) the preparation of required regulatory filings
and reports and payments of required governmental fees and expenses,
(iii) the preparation and filing of tax returns, (iv) overseeing the
determination of net asset value calculations, (v) arranging for and
supervising payments of expenses, (vi) the preparation of financial
statements, (vii) the provision of legal and regulatory compliance
services and supervision of regulatory and compliance matters,
including without limitation the preparation and filing of
registration statements and disclosure documents required by federal
or state law, (viii) the preparation of annual and semiannual reports
and other shareholder communications and (ix) corporate secretary and
treasury services.
"Asset and Investment Management Business" shall mean the asset
and investment management business of USTNY and its affiliates
("AIM"), as conducted in the case of USTNY by its Asset Management
Group, which includes administration of personal and Family trusts and
estates, estate planning services, providing Special Fiduciary
Services, broker-dealer services, custody services with respect to
assets managed by AIM, providing tax services and financial counseling
and acting as a discretionary trustee or an investment manager for
stocks, bonds, separately managed or pooled accounts, common trust
funds and other financial assets for individuals and entities
including without limitation, mutual funds, institutions and employee
benefit plans.
"Bundled Services" shall mean the provision of Administration
Services, Custody Services or Trust Services as included services,
without separate charge, together with the exercise of Substantial
Management Discretion over 50% or more of the investible assets in the
account for which such included services are provided.
"Cash Management" shall mean short term investment management of
uninvested cash balances in instruments or vehicles having an average
maturity of 180 days or less, including without limitation STIFs or
money market funds.
"Change of Control" shall mean any direct or indirect acquisition
of New Holdings or New Trustco by any other institution, including
without limitation, a merger of New Holdings or New Trustco with an
unaffiliated institution (or any affiliate of such institution) having
total assets of $2 billion or more or shareholders' equity of $200
million or more.
"Corporate Trust and Agency Business" shall mean the corporate
trust and agency business of USTNY and its affiliates, which includes
acting as trustee for the holders of interests representing
obligations under bonds, debentures, leases, structured obligations,
derivative and asset-backed securities, and voting trusts, acting as
registrar, tender agent, voting trustee, solicitation agent, drawing
agent, authenticating agent, warrant agent, paying agent, issuing
agent, depositary or exchange agent for cash, securities or other
property (other than registered Investment Company securities), acting
as fiscal agent under public bond resolutions, acting as an escrow
agent, transfer agent or collateral agent for public and private
corporations, partnerships (but not registered Investment Companies)
and municipalities and acting as bond immobilization agent.
"Custody Services" shall mean the provision of custodial trustee,
safekeeping and related services to clients with respect to their
cash, securities or other assets, including (i) custody and
safekeeping of assets, (ii) settlement of securities and asset
transactions and reporting thereof, (iii) determination and collection
of income and entitlements on securities and other assets, (iv) making
cash disbursements and reporting cash transactions, (v) maintenance of
investment ledgers and position and income reports, including account
ledgers, statements of account, asset status lists and investment
reviews, (vi) cash balance sweep services, (vii) securities lending
and investment of related collateral, (viii) securities and
commodities clearing services, (ix) foreign exchange services, and (x)
extensions of credit to (A) Investment Companies for leverage and
12b-1 financing and (B) other commingled investment funds.
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"Family" shall mean an individual or group of individuals related
by blood, marriage, or similar relationships.
"Family Office" shall mean any corporation, trust, partnership or
other entity established and operated exclusively to manage, or as a
vehicle for the common management of, the assets or affairs of a
Family. A "Family Office" may include foundations or endowments,
provided that when aggregated, all such foundations and endowments
shall constitute less than 50% of: (i) the investible assets of the
Family Office and (ii) the investible assets of Family Members under
the management of New Holdings or any subsidiary or affiliate of New
Holdings. "Family Office" shall also include any employee benefit plan
trust maintained exclusively for the benefit of Family retainers and
employees of the Family Office.
"Family Trust" shall mean any trust for the benefit of an
individual or Family.
"Institutional Client" shall mean any corporation, trust,
foundation, endowment, limited liability company, partnership or
similar entity having investible assets of $50 million or more, other
than a Family Office.
"Private Banking Business" shall mean the private banking
business of USTNY and its affiliates which includes the provision of a
full range of commercial banking and fiduciary services to
individuals, Families, Family Offices, partnerships and other
entities. Services and products provided by the Private Banking
Business include checking accounts, money market accounts,
certificates of deposit, secured and unsecured loans, mortgage loans,
lines of credit, letters of credit, custody and securities
administration services, secured broker loans and Cash Management
services offered to securities industry participants and financial
institutions (other than Customers).
"Processing Business" shall mean the business of providing
Administration Services, Custody Services or Trust Services; provided,
however, that the term "Processing Business" shall not include any
services that would, but for this proviso, constitute "Processing
Business," to the extent such services are provided in connection with
any of the following: (i) any relationship listed in Schedule 7.2;
(ii) assets with respect to which New Holdings or any subsidiary or
affiliate of New Holdings exercises investment management; (iii)
individuals, estates, Family Trusts or Family Offices; (iv) any
corporation, limited liability company, trust, partnership, foundation
or endowment or other entity having, at the time of the acceptance of
the relationship, investible assets of less than $50 million or, at
any time the services are provided other than as Bundled Services,
investible assets of less than $100 million; (v) any collective
investment trust maintained exclusively by New Trustco or another bank
or trust company affiliate; (vi) the Corporate Trust and Agency
Business of New Holdings, New Trustco or any of their affiliates,
(vii) subject to clause (iv) above, the AIM Business; (viii) subject
to clause (iv) above, the Private Banking Business, (ix) any service
provided to New Holdings or a subsidiary or affiliate of New Holdings
for its own account or (x) any relationship for which CMC serves as
subcustodian to New Holdings or any subsidiary or affiliate of New
Holdings (other than pursuant to the Services Agreement). Except as
expressly provided, the foregoing clauses (i) through (x) operate
independently and none shall be deemed to limit the other.
"Special Fiduciary Services" shall mean any special appointment
to act as trustee or as fiduciary with respect to employer or
employer-related securities in which the trustee or fiduciary is
appointed for the express purpose of making a special investment or
voting decision or other discretionary decision with respect to such
employer or employer-related securities.
"Substantial Management Discretion" shall mean the actual
management of investible assets, directly or through a subadvisor,
whether or not the manager exercises final decision-making power over
assets.
"Transfer Agent Services" shall mean any or all of the services,
functions or activities of a transfer agent, as defined in Section
3(a)(25) of the Exchange Act, including but not limited to the
functions of dividend disbursing agent, registrar, and shareholder
liaison functions, and (i) the maintenance, updating and operating of
shareholder or equivalent ownership of shares, units or
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<PAGE>
partnership interests in such accounts, (ii) the preparation and input
of all orders for purchases, exchanges, redemptions and transfers and
any reconciliations, settlements and mailings relating thereto, (iii)
responding to inquiries from existing and prospective shareholders,
unitholders or partners, (iv) reconciling all internal accounts, such
as incoming cash and settlement wires, (v) tax preparation, materials
or reports for shareholders, unitholders or partners (but not
Investment Companies), and reporting and compliance in connection
therewith, (vi) record-keeping for shareholders, unitholders or
partners in accordance with applicable law, rules and regulations and
(vii) other services customarily performed by a transfer agent.
"Trust Services" shall mean services provided as a trustee or
custodian consisting of the provision of safekeeping and related
services to clients with respect to their cash, securities or other
assets, including the services denoted under "Custody Services" above,
and the following: (i) portfolio accounting services including but not
limited to financial and tax recordkeeping, (ii) preparation of
required regulatory filings and reports, (iii) provision of
performance measurement and analytical services, including the on-line
delivery thereof and (iv) benefit payments and participant
recordkeeping.
SECTION 8. Other Agreements. (a) Old USTNY acknowledges that certain
Customer Agreements (as defined in the Contribution Agreement) of the IAS
Business (as defined in the Contribution Agreement) for Cash Management
Services relating to collective investment vehicles that will be maintained or
advised by New Trustco are part of the Retained Assets. In each such instance,
New Trustco shall use its best efforts to have the relevant Customers (as
defined in the Contribution Agreement) of the IAS Business enter into
agreements with New USTNY in order to transfer the money management
relationship of such Customers to New USTNY.
(b) From and after the Closing Date, Old USTNY shall use its best efforts
to assist New Trustco in the collection of the Transferred Processing
Receivables (as defined in the Contribution Agreement); provided, however,
that the foregoing shall not require Old USTNY to incur any actual cost or
expense not reimbursed by New Trustco or to conduct litigation (but Old USTNY
shall cooperate in such ways as may reasonably be requested by New Trustco, at
New Trustco's expense, in connection with any litigation commenced by New
Trustco to collect such Transferred Processing Receivables).
SECTION 9. Validity. If any provision of this Agreement should, for any
reason whatsoever, be declared invalid or unenforceable by a court of
competent jurisdiction, the validity or enforcement of the remainder of the
Agreement shall not thereby be adversely affected and such provision shall be
deemed deleted herefrom with respect, and only with respect, to the operation
of such provision in the particular jurisdiction in which such adjudication
was made; provided, however, that to the extent any such provision may be made
valid and enforceable in such jurisdiction by limitations on the scope of the
activities, geographical area or time period covered, the parties agree that
such provision instead shall be deemed limited to the extent, and only to the
extent, necessary to make such provision enforceable to the fullest extent
permissible under the laws and public policies applied in such jurisdiction,
and any court of competent jurisdiction is hereby authorized to enforce such
provision as so limited.
SECTION 10. Notices. Any notice, request, instruction or other document
to be given hereunder by any party to any other party shall be in writing and
shall be deemed to have been duly given (i) on the first business day
occurring on or after the date of transmission if transmitted by facsimile
(upon confirmation of receipt by journal or report generated by the facsimile
machine of the party giving such notice), (ii) on the first business day
occurring on or after the date of delivery if delivered personally or (iii) on
the first business day following the date of dispatch if dispatched by Federal
Express or other next-day courier service. All
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<PAGE>
notices hereunder shall be given as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(i) if to any of the Chase Parties, to
c/o The Chase Manhattan Corporation
One Chase Manhattan Plaza
New York, New York 10081
Attention: Robert M. MacAllister
Facsimile Number: (212) 552-4934
with a copy (which shall not constitute notice) to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10022
Attention: William H. Satchell
Facsimile Number: (212) 326-2061
(ii) if to any of the New UST Parties, to
c/o U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attention: Maureen Scannell Bateman
Facsimile Number: (212) 852-1310
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: B. Robbins Kiessling
Facsimile Number: (212) 765-0992
SECTION 11. Books and Records. After the Closing, upon reasonable
written notice, New Trustco and Old USTNY each shall furnish or cause to be
furnished to the other and their respective accountants, counsel and other
representatives access, during normal business hours, to such information
(including books and records) as is reasonably necessary.
SECTION 12. Expenses. New Holdings and New Trustco jointly and
severally agree to pay all fees and expenses incurred by the Company and Old
USTNY and their respective affiliates in connection with the negotiation and
execution of the Documents and the performance of the transactions
contemplated thereby, other than transactions performed after the Effective
Time.
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws.
SECTION 14. Interpretation. When a reference is made in this Agreement
to a Section, Schedule or Exhibit, such reference shall be to a Section,
Schedule or Exhibit of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "included", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Agreement shall have the
meanings determined by generally accepted accounting principles.
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<PAGE>
SECTION 15. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, expressed or implied, is intended to confer upon any other Person
any rights, benefits or remedies of any nature whatsoever under or by reason
of this Agreement.
SECTION 16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first written above.
THE CHASE MANHATTAN CORPORATION
By:
----------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK
By:
----------------------------------
Name:
Title:
NEW U.S. TRUST COMPANY OF NEW YORK
By:
----------------------------------
Name:
Title:
U.S. TRUST CORPORATION
By:
----------------------------------
Name:
Title:
NEW USTC HOLDINGS CORPORATION
By:
----------------------------------
Name:
Title:
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<PAGE>
APPENDIX E
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- ------------------------------------------------------------------------------
TAX ALLOCATION AGREEMENT
Dated as of , 1995
Among
U.S. TRUST CORPORATION
NEW USTC HOLDINGS CORPORATION
and
THE CHASE MANHATTAN CORPORATION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TAX ALLOCATION AGREEMENT (the "Agreement")
dated as of , 1995, among
U.S. TRUST CORPORATION, a New York corporation
(the "Company"),
NEW USTC HOLDINGS CORPORATION, a New York corporation
("New Holdings") and THE CHASE MANHATTAN CORPORATION,
a Delaware corporation ("Parent").
WHEREAS, the Company is currently the common parent of an affiliated
group of corporations (the "Affiliated Group") filing consolidated Federal
income Tax returns and unitary or combined state income Tax returns
("Consolidated Returns"), pursuant to which the Company and one or more other
members of the Affiliated Group pay Taxes on a consolidated, combined or
unitary basis ("Consolidated Taxes");
WHEREAS, on , United States Trust Company of New York, a New
York State chartered bank and trust company ("USTNY") and a wholly owned
subsidiary of the Company, transferred certain assets and liabilities
associated with USTNY's private banking and asset management businesses to New
U.S. Trust Company of New York, a New York State chartered bank and trust
company ("New Trustco") and a newly formed, wholly owned subsidiary of USTNY
("Contribution No. 1");
WHEREAS, immediately thereafter, USTNY distributed the stock of New
Trustco to the Company ("Spinoff No. 1") in a transaction intended to qualify
as a tax-free distribution under Section 355 of the Internal Revenue Code of
1986, as amended (the "Code");
WHEREAS, immediately thereafter, the Company contributed the stock of New
Trustco, the stock of certain other subsidiaries of the Company and certain
other assets to New Holdings, a newly formed, wholly owned subsidiary of the
Company ("Contribution No. 2");
WHEREAS, the Company intends to distribute all the stock of New Holdings
to its shareholders ("Spinoff No. 2") in a transaction intended to qualify as
a tax-free spin-off under Section 355 of the Code (Contribution No.1,
Contribution No.2, Spinoff No.1 and Spinoff No.2 are referred to,
collectively, herein as the "Spinoffs");
WHEREAS, on the beginning of the first day after the date on which
Spinoff No.2 occurs (the "Distribution Date"), New Holdings and its
subsidiaries, including New Trustco (collectively, the "Holdings Group"), will
cease to be members of the Affiliated Group of which the Company is the common
parent corporation, within the meaning of Section 1502 of the Code, and which
has elected to file Consolidated Returns;
WHEREAS, immediately following Spinoff No.2 pursuant to an agreement
between the Company and the Parent, the Company shall merge with the Parent or
a subsidiary of the Parent and USTNY may merge with a subsidiary of the Parent
(collectively, the "Merger");
WHEREAS, the Company and New Holdings desire to allocate the liability
for the Taxes (including any interest or penalties thereon and additions
thereto) of members of the Affiliated Group for any taxable period (including
short taxable periods and any portion of any taxable period) which period (or
portion) ends on or before the effective date of the Merger (a "Pre-Merger Tax
Period") and to provide for certain other tax-related matters;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows.
1. Indemnification by the Company and USTNY. The Company and its
subsidiaries, other than USTNY, shall indemnify and hold harmless New
Holdings against any Federal, state, local and foreign income, property,
sales, excise, transfer, withholding, employment or other taxes, tariffs
or governmental charges (and all penalties and interest relating thereto)
imposed by a governmental authority pursuant to the exercise of its power
to tax (collectively, "Taxes") (i) imposed on the Company, USTNY or any
of their respective subsidiaries at the Effective Time of the Merger for
any taxable period (including short taxable periods and any portion of
any taxable period) which period (or portion) begins on or after and
<PAGE>
ends after the effective date of the Merger (a "Post-Merger Tax Period"),
(ii) imposed on any member of the Affiliated Group as a result of the
Merger failing to qualify as a reorganization under Section 368(a) of the
Code solely by reason of one or more actions, other than a Contemplated
Action, taken by the Company, the Parent or any of their respective
subsidiaries after the Merger or (iii) imposed as a result of the
Spinoffs on any member of the Affiliated Group solely by reason of one or
more actions, other than a Contemplated Action, taken by the Company, the
Parent or any of their respective subsidiaries after the Merger. As used
herein, "Contemplated Action" shall mean any action or inaction set forth
in the documents prepared in connection with the Spinoffs and the Merger,
and actions or inactions contemplated to be taken as specified in writing
by the Parent to New Holdings in connection with the preparation of a
private letter ruling request to be completed in connection with the
Spinoffs and the Merger. Except as specifically provided in this Section
1, none of Parent, the Company nor any of their respective subsidiaries
shall have any obligation to any of New Holdings, New Trustco or any of
their respective subsidiaries for any Taxes arising from or related to
the Spinoffs or the Merger.
2. Indemnification by New Holdings. New Holdings and each direct or
indirect subsidiary thereof, other than New Trustco, shall indemnify and
hold harmless the Parent, the Company, USTNY and each direct or indirect
subsidiary thereof against any and all Taxes, other than Taxes for which
New Holdings, New Trustco and each direct or indirect subsidiary thereof
has been indemnified under Section 1, (i) imposed on any member of the
Affiliated Group with respect to a Pre-Merger Tax Period or (ii) imposed
on Parent, Company and each direct or indirect subsidiary thereof as a
result of the Spinoffs or the Merger.
3. Control of Tax Matters. (a) The Company hereby irrevocably
designates, and agrees to cause each of its subsidiaries to so designate,
New Holdings as its agent to take any and all actions, at New Holdings'
sole expense, necessary or incidental to the preparation of Tax returns
and the filing of claims for refunds or forms relating to any Pre-Merger
Tax Period. For any Straddle Period (as defined in Section 4) of the
Company or any of its subsidiaries that was a member of the Affiliated
Group for any Pre-Merger Tax Period, Parent, at Parent's sole expense,
will timely file (in a manner consistent with past practice of the
Company, unless Parent reasonably determines that such practice is
inconsistent with the then existing state of the law) with the
appropriate Taxing authorities all Tax returns required to be filed.
(b) If requested by New Holdings the Company will, and will cause
each of its subsidiaries that was a member of the Affiliated Group for
any Pre-Merger Tax Period to, and New Holdings will, and will cause each
of its subsidiaries that was a member of the Affiliated Group for any
Pre-Merger Tax Period to, join in the filing of Consolidated Returns for
all Pre-Merger Tax Periods to the extent the Company, New Holdings and
their subsidiaries are respectively eligible to join in such Consolidated
Returns. Such Consolidated Returns will be filed on behalf of the
Affiliated Group by New Holdings or, if so requested by New Holdings, by
the Company.
(c) The Company shall refrain, and shall cause each of its
subsidiaries to refrain, from making any material tax election (including
an election under Section 13261(g)(2) of the Revenue Reconciliation Act
of 1993) without the prior written consent of New Holdings that would (i)
bind New Holdings or any member of the Holdings Group or (ii) materially
affect the Tax liability of the Affiliated Group.
(d) Without the prior written consent of Parent, New Holdings shall
refrain, and shall cause each of its subsidiaries to refrain, from
making, filing or amending any Tax return that includes any Pre-Merger
Tax Period that (i) is inconsistent with the existing and historic method
used by the Affiliated Group in calculating the taxable income of the
Affiliated Group and (ii) would materially affect the Tax liability of
the Parent, Company and each direct or indirect subsidiary thereof for
any Post-Merger Tax Period.
4. Allocation Between Taxable Periods. (a) In the case of any
taxable period that includes but does not end on the effective date of
the Merger (a "Straddle Period"),
(i) real, personal and intangible property Taxes, other than
transfer and similar Taxes, ("Property Taxes") allocated to the
Pre-Merger Tax Period shall be equal to the amount of such Property
Taxes for the entire Straddle Period multiplied by a fraction, the
numerator of which is the
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<PAGE>
number of days during the Straddle Period that are in the Pre-Merger
Tax Period and the denominator of which is the number of days in the
Straddle Period; and
(ii) all Taxes (other than Property Taxes) for the Pre-Merger Tax
Period shall be computed based on an actual closing of the books as if
such taxable period ended as of the close of business on the effective
date of the Merger and, in the case of any Taxes attributable to the
ownership of any equity interest in any partnership or other "flow
through" entity, based on an actual closing of the books as if the
taxable period of such partnership or other "flow through" entity
ended as of the close of business on the effective date of the Merger;
provided, however, the transfers and transactions (including Taxes
attributable thereto) which occur to effectuate the Spinoffs or the
Merger shall be allocated to the Pre-Merger Tax Period.
(b) In the case of any taxable period other than a Straddle Period,
all income, deductions and other items shall be allocated between the
Pre-Merger Tax Period and the Post-Merger Tax Period in a manner
consistent with applicable tax accounting principles and based on an
actual closing of the books of the Company on the effective date of the
Merger except that (i) allowances or deductions that are calculated on an
annual basis (such as the deductions for amortization, depreciation or
capital allowances) and Property Taxes shall be prorated on a daily
basis, (ii) transfers and transactions (including Taxes attributable
thereto) which occur to effectuate the Spinoffs or the Merger shall be
allocated to the Pre-Merger Tax Period, and (iii) if the effective date
of the Merger occurs on a date other than the first day of a fiscal month
of the Company, all income, deductions and other items for such month
(other than amounts attributable to transactions not in the ordinary
course of business and other than closing adjustments and other similar
adjustments) will be prorated on a daily basis. Any adjustments made by
any Taxing authority shall be allocated in accordance with the principles
of this Section 4(b).
(c) Without limiting the foregoing provisions of this Section 4
setting forth the principles for allocating income, gain, loss,
deduction, credits, events or transfers between Pre-Merger and
Post-Merger Tax Periods, and any Straddle Period, New Holdings, Parent,
and the Company shall file, or cause to be filed, all relevant Tax
returns and execute, or cause to be executed, such other documents as may
be required by any Taxing authority, on the basis that the Spinoffs and
the Merger shall occur for Tax purposes as of the close of business on
the day before the effective date of the Merger and refrain from taking
any position inconsistent with such basis with any Taxing authority
unless the relevant Taxing authority will not accept a Tax return filed
on such basis, or unless otherwise required under applicable law after a
final determination thereof.
5. Cooperation. The Company agrees to cooperate with New Holdings,
and will cause each of its subsidiaries to so cooperate, in a timely
manner consistent with existing practice in filing any return or consent
contemplated by this Agreement. The Company also agrees to take, and will
cause the appropriate subsidiary to take, such action or actions as New
Holdings may reasonably request, including but not limited to the filing
of requests for the extension of time within which to file tax returns,
and to cooperate in connection with any refund claim with respect to any
Pre-Merger Tax Period. The Company further agrees to furnish timely, and
to cause each of its subsidiaries to so furnish, New Holdings with any
and all information reasonably requested by New Holdings in order to
carry out the provisions of this Agreement. Without limiting the
generality of the foregoing sentence, the Company specifically agrees to
provide to New Holdings promptly, but in any event within 10 days of
receipt thereof, copies of any correspondence or notices received from
the Internal Revenue Service or any other Taxing authority with respect
to Taxes of the Affiliated Group for a Pre-Merger Tax Period. New
Holdings agrees to furnish timely to the Company any and all information
requested by the Company in order to carry out the provisions of this
Agreement.
6. Refunds and Carrybacks; Carryforwards. (a) Any refund or
reduction of any Tax that results from any refund or carryback of a loss,
credit or similar item of the Company arising from or attributable to a
PreMerger Tax Period to a Taxable period beginning prior to the effective
date of the Merger shall be for the account of New Holdings. The Company
shall, promptly upon receipt by the Company, pay to New Holdings any such
refund or reduction (whether payable pursuant to a Consolidated Return or
not)
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<PAGE>
together with any interest relating thereto at the Federal statutory rate
used by the Internal Revenue Service or the relevant Taxing authority in
computing the interest payable by or to it, regardless of whether such
refund is attributable to a carryback, adjustment or any other factor.
The Company's obligations under this Section 6(a) shall be limited to
amounts (including interest) actually received by the Company with
respect to such refund. A refund or reduction will be considered to have
been received by the Company or its affiliate (i) to the extent that the
amount of Taxes such person would be required to pay but for such refund
or carryback is reduced, or the amount of a Tax refund such person would
receive but for such refund or carryback is increased and (ii) at the
time a Tax payment or refund referred to in clause (i) is actually paid
or received, as the case may be, by the Company or its then existing
affiliates. New Holdings and its direct and indirect subsidiaries shall
reimburse Company for any payment (including any expenses, interest or
penalties related thereto) made by Company under this Section 6(a)
promptly upon a determination that the refund or reduction to which such
payment relates was erroneous.
(b) Any refund or reduction of any Tax that results from any
carryforward of a loss, credit or similar item of the Company from a
Taxable period beginning prior to the effective date of the Merger to a
Taxable period beginning on or after the effective date of the Merger
shall be for the account of New Holdings. In the event the Company, USTNY
or any subsidiary of the Company that was a member of the Affiliated
Group for a Pre-Merger Tax Period carries forward such loss, credit or
similar item from a Pre-Merger Tax Period to a taxable period ending
after the date of the Merger, the Company shall pay to New Holdings the
Tax benefit attributable to such carryforward as and when such Tax
benefit is realized. In computing the amount of any such refund or
reduction of Tax, the Company or its affiliate will be deemed to
recognize all items of income, gain, loss, reduction or credit before
recognizing any item so carried forward. A refund or reduction will be
considered to have been received by the Company or its affiliate (i) to
the extent that the amount of Taxes such person would be required to pay
but for such carryforward is reduced, or the amount of a Tax refund such
person would receive but for such carryforward is increased and (ii) at
the time a Tax payment or refund referred to in clause (i) is actually
paid or received, as the case may be, by the Company or its affiliates.
Such amount shall be paid by the Company to New Holdings within five
business days of a written request therefor by New Holdings, which
request shall set forth in reasonable detail the computation of such
amount and the date such Tax benefit was received. New Holdings and its
direct and indirect subsidiaries shall reimburse Company for any payment
(including any expenses, interest or penalties related thereto) made by
Company under this Section 6(b) promptly upon a determination that the
refund or reduction to which such payment relates was erroneous.
(c) To the extent Parent reasonably determines that any refund or
reduction received by Company or its direct or indirect subsidiaries
which is payable to New Holdings under this Section 6 is based on a
position that is likely to be successfully challenged by Taxing
authorities, Company shall have the right to require New Holdings to
secure its reimbursement obligation in a manner and for a term reasonably
satisfactory to Parent; provided, further, Company's obligations
hereunder to pay such refund to New Holdings shall be conditioned upon
the prior receipt of such security. Provided, however, if the amount
Company or its direct or indirect subsidiaries must pay to any Taxing
authority with respect to any such refund or reduction exceeds the amount
of security, if any, provided the Company pursuant to this Section 6(c),
New Holdings shall pay such excess to the Company as provided in Sections
6(a) or 6(b), as applicable.
7. Contests. (a) Except as provided below, in the event that any
deficiencies or refund claims arise with respect to a Tax liability of
the Affiliated Group for a Pre-Merger Tax Period, New Holdings shall
control all proceedings with respect thereto. In the event that any issue
or issues are raised during such proceedings that may result, directly or
indirectly, in deficiencies or refund claims related to Taxes that would
be required to be paid by the Company pursuant to Section 1 hereof, both
New Holdings and Parent agree and acknowledge that the contest of any
such issue or issues shall be conducted jointly; provided, however, all
major decisions regarding the conduct of such contest shall be made by
Parent. New Holdings' right to indemnity hereunder shall be conditioned
on New Holdings' compliance with
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<PAGE>
Section 4 of the Post Closing Covenants Agreement except that New
Holdings' shall be required to give notice to Parent under Section 4 of
the Post Closing Covenants Agreement upon the receipt of oral or written
notice by New Holdings from any governmental authority or agent thereof
of an issue that may result in Taxes for which a claim for indemnity from
Parent, Company or USTNY may be made under this Agreement.
(b) New Holdings and the Company agree to cooperate in all
reasonable respects with respect to Tax deficiencies or refund claims
described in Sections 6(a) and (b), which cooperation shall include
executing and filing such waivers, consents, forms, court petitions,
refund claims, complaints, powers of attorney and other documents needed
from time to time in order to defend, prosecute or resolve such
deficiencies or claims.
8. Computations. Other than determinations of whether there are
any indemnity obligations under this Agreement, all computations or
recomputations of Tax liability and all determinations, computations or
recomputations of any amount or any payment (including, but not limited
to, computations of the amount of the Tax liability, the amount or effect
of any loss, credit or deduction, the effect of a Federal statutory Tax
rate change for a Taxable year, and the amount of any interest, penalties
or additions imposed with respect to any Tax) shall be prepared by New
Holdings and submitted to Parent for its written approval. Any
disagreement as to such computations after submission to the Parent by
New Holdings shall be resolved by a nationally recognized accounting
firm, with expertise in Tax, independent of each of the parties hereto.
Without limiting the foregoing, New Holdings shall calculate the Taxable
income of the Affiliated Group in accordance with the existing and
historic methodology used by the Affiliated Group in calculating Taxable
income of the Affiliated Group and submit such calculation to the Parent
in accordance with the provisions of this Section 8.
9. Offsets. No payment shall be required to be made by either
party to the other pursuant to this Agreement to the extent that there is
an amount then due and payable under this Agreement to the party that is
to make such payment.
10. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole
or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their
respective successors and assigns.
11. Survival. The provisions of this Agreement shall survive the
effective date of the Merger and remain in full force until all periods
of limitations, including any extensions or waiver periods, for all
Taxable periods of the Company and New Holdings prior to or including the
effective date of the Merger have expired.
12. Notices. Any notices, payments or other communications
required by this Agreement shall be made as provided in the Section 10 of
the Post Closing Covenants Agreement; however, copies of such notices,
payments or other communications shall, for both New Holdings and the
Company, be sent to the attention of the Director of Taxes.
13. Governing Law. The principles and provisions of Section 8.7 of
the Merger Agreement shall apply to this Agreement.
14. Entire Agreement. This Agreement (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of
this Agreement and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies. The parties agree that to
the extent the provisions of any other agreements executed in connection
with the Spinoffs or the Merger are inconsistent with the provisions
hereof, the provisions of this Agreement shall prevail.
15. Counterparts. The principles and provisions of Section 8.5 of
the Merger Agreement shall apply to this Agreement.
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<PAGE>
16. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstances shall be
held invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
17. Headings. Headings of sections in this Agreement are inserted
for convenience of reference only and are not intended to be a part of or
to affect the meaning or interpretation of this Agreement.
18. Definitions. Any capitalized term not defined in this
Agreement shall have the meaning given to such term by the Contribution
and Assumption Agreement, the Agreement and Plan of Distribution or the
Merger Agreement.
[Remainder Of Page Intentionally Left Blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
U.S. TRUST CORPORATION
By:
------------------------------------
Name:
Title:
NEW USTC HOLDINGS CORPORATION
By:
------------------------------------
Name:
Title:
THE CHASE MANHATTAN
CORPORATION
By:
------------------------------------
Name:
Title:
E-7
<PAGE>
APPENDIX F
CS FIRST BOSTON
(LOGO)
CS First Boston Corporation 55 East 52nd Street
New York, NY 10055-0186
Telephone 212 909 2000
February 9, 1995
Board of Directors
U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
Dear Members of the Board:
We have acted as financial advisor to U.S. Trust Corporation (the
"Corporation") in connection with the proposed sale (the "Sale") of the unit
investment trust, mutual fund services and institutional asset services
divisions (the "Processing Business") to The Chase Manhattan Corporation
("Chase") pursuant to a Merger Agreement (the "Merger Agreement"), dated as of
November 17, 1994, between the Corporation and Chase, for an aggregate
consideration of $363.5 million of Chase common stock, up to a maximum of
11,721,806 shares. You have asked us to advise you with respect to the
fairness to the Corporation, from a financial point of view, of the
consideration to be received by the shareholders of the Corporation in the
Sale.
In arriving at our opinion, we have reviewed certain publicly available
financial information relating to the Corporation and Chase. We have also
reviewed certain other information, including financial forecasts, provided to
us by the management of the Corporation and have met with the Corporation's
senior management to discuss the business and prospects of the Processing
Business.
We have also considered the financial terms of certain other comparable
transactions which have recently been effected and reviewed publicly available
financial and stock market data for companies providing data processing
services which we have compared to the financial data of the Processing
Business. We have also considered such other information, financial studies,
analysis and investigations and financial, economic and market criteria which
we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to
the financial forecasts, management of the Corporation has advised us, and we
have assumed, that they have been reasonably prepared, reflecting the best
currently available estimates and judgments of the Corporation's management as
to the future financial performance of the Processing Business. In addition,
we have not made an independent evaluation or appraisal of the assets of the
Processing Business, nor have we been furnished with any such evaluations or
appraisals. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist on the date hereof. We are not expressing
any opinion as to what the value of the Chase common stock actually will be
when issued to the shareholders of the Corporation in connection with the Sale
or the prices at which such Chase common stock will trade subsequent to such
issuance. We have assumed, with your consent, that the Sale will be treated as
a tax-free transaction.
We have acted as financial advisor to the Corporation in connection with
the Sale and will receive a fee for our services, which is contingent in part
upon the consummation of the Sale.
<PAGE>
In the past, we have performed certain investment banking services for
Chase and have received customary fees for such services. In the ordinary
course of our business, we may actively trade the debt and equity securities
of the Corporation and Chase for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the consideration to be received in the Sale by the shareholders
of the Corporation is fair to the Corporation from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: /s/ ROBERT M. BAYLIS
--------------------------------------------------------
Robert M. Baylis
Vice Chairman
<PAGE>
APPENDIX G
SECTIONS 910 AND 623 OF THE NEW YORK BUSINESS CORPORATION LAW
sec. 910. Right of shareholder to receive payment for shares upon merger
or consolidation, or sale, lease, exchange or other disposition of assets, or
share exchange. (a) A shareholder of a domestic corporation shall, subject to
and by complying with section 623 (Procedure to enforce shareholder's right to
receive payment for shares), have the right to receive payment of the fair
value of his shares and the other rights and benefits provided by such
section, in the following cases:
(1) Any shareholder entitled to vote who does not assent to the taking of
an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a
party; except that the right to receive payment of the fair value of his
shares shall not be available:
(i) To a shareholder of the parent corporation in a merger authorized by
section 905 (Merger of parent and subsidiary corporations), or paragraph (c)
of section 907 (Merger or consolidation of domestic and foreign corporations);
and
(ii) To a shareholder of the surviving corporation in a merger authorized
by this article, other than a merger specified in subparagraph (i), unless
such merger effects one or more of the changes specified in subparagraph
(b)(6) of section 806 (Provisions as to certain proceedings) in the rights of
the shares held by such shareholder.
(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires shareholder
approval under section 909 (Sale, lease, exchange or other disposition of
assets) other than a transaction wholly for cash where the shareholders'
approval thereof is conditioned upon the dissolution of the corporation and
the distribution of substantially all of its net assets to the shareholders in
accordance with their respective interests within one year after the date of
such transaction.
(C) Any share exchange authorized by section 913 in which the corporation
is participating as a subject corporation: except that the right to receive
payment of the fair value of his shares shall not be available to a
shareholder whose shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger authorized
by section 905 or paragraph (c) of section 907, or in a share exchange
authorized by paragraph (g) of section 913, who files with the corporation a
written notice of election to dissent as provided in paragraph (c) of section
623. (Last amended by L. 1991, Ch. 390, sec. 3.)
sec. 623. Procedure to enforce shareholder's right to receive payment for
shares.--(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate
action referred to therein is taken shall file with the corporation, before
the meeting of shareholders at which the action is submitted to a vote, or at
such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares if the action is
taken. Such objection is not required from any shareholder to whom the
corporation did not give notice of such meeting in accordance with this
chapter or where the proposed action is authorized by written consent of
shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not
to enforce his right to receive payment for his shares.
G-1
<PAGE>
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of Section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as
to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid
the fair value of his shares and any other rights under this section. A notice
of election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenters' rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares
at a specified price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth the aggregate
number of shares with respect to which notices of election to dissent have
been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the
certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent
G-2
<PAGE>
of the amount of such offer, or (2) as to each shareholder who has not yet
submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does
not constitute a waiver of any dissenters' rights. If the corporate action has
not been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose share the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve-month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares.
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office
of the corporation is located to determine the rights of dissenting
shareholders and to fix the fair value of their shares. If, in the case of
merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought
in the county where the office of the domestic corporation, whose shares are
to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless the
supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and
exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date. In
fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment
G-3
<PAGE>
for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a jury
and without referral to an appraiser or referee. Upon application by the
corporation or by any shareholder who is a party to the proceeding, the court
may, in its discretion, permit pretrial disclosure, including, but not limited
to, disclosure of any expert's reports relating to the fair value of the
shares whether or not intended for use at the trial in the proceeding and not
withstanding subdivision (d) of section 3101 of the civil practice laws and
rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the
pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. Notwithstanding the foregoing, the court may, in its discretion, apportion
and assess all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties
to the proceeding, including any who have withdrawn their notices of election
as provided in paragraph (e), if the court finds that their refusal to accept
the corporate offer was arbitrary, vexatious or otherwise not in good faith.
The court may, in its discretion, apportion and assess all or any part of the
costs, expenses and fees incurred by any or all of the dissenting shareholders
who are parties to the proceeding against the corporation if the court finds
any of the following: (A) that the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay; (B) that
no offer or required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying
with its obligations as provided in this section was arbitrary, vexatious or
otherwise not in good faith. In making any determination as provided in clause
(A), the court may consider the dollar amount or the percentage, or both, by
which the fair value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceedings, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
G-4
<PAGE>
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except
that this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given
in the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Last amended by L. 1986, Ch 117, sec. 3.)
G-5
<PAGE>
APPENDIX H
INFORMATION STATEMENT RELATING TO
NEW USTC HOLDINGS CORPORATION
AND THE DISTRIBUTION
INTRODUCTION
This Information Statement is being furnished to stockholders of U.S.
Trust Corporation, a New York corporation ("UST"), in connection with the
contemplated pro rata distribution (the "Distribution") to UST stockholders of
shares of common stock, par value $1.00 per share ("Company Common Stock"), of
New USTC Holdings Corporation, a New York corporation and wholly owned
subsidiary of UST (the "Company"). The holders of UST common stock, par value
$1.00 per share ("UST Common Stock"), will receive one share of Company Common
Stock with respect to each share of UST Common Stock held by such holder on
the record date for the Distribution (the "Distribution Record Date"). The
Distribution will result in 100% of the outstanding shares of Company Common
Stock being distributed to UST stockholders on a share-for-share basis. The
Distribution is being effected by UST in connection with the acquisition by
The Chase Manhattan Corporation, a Delaware corporation ("Chase"), of UST's
securities processing business and related back office operations, including
the assets and certain liabilities related thereto (the "Chase Acquired
Business"), pursuant to a merger (the "Merger") of UST with and into Chase
following the Distribution.
At the time of the Distribution, the Company will own all of UST's
businesses, assets and liabilities, other than the Chase Acquired Business
(collectively, the "Core Businesses"). Immediately prior to the time the
Distribution is effected (the "Time of Distribution"), the Core Businesses,
which include UST's asset management, private banking, special fiduciary,
corporate trust and other non-processing businesses, will be transferred to
the Company by UST in accordance with (i) the Contribution and Assumption
Agreement to be entered into prior to the Time of Distribution between United
States Trust Company of New York, a New York bank and trust company and a
wholly owned subsidiary of UST ("USTNY"), and New U.S. Trust Company of New
York, a recently organized entity that at the Time of Distribution will be a
New York bank and trust company and a wholly owned subsidiary of the Company
("New Trustco"), the form of which is an Exhibit to the Company Form 10 (as
defined below) of which this Information Statement forms a part and which is
attached as Appendix C to the Proxy Statement-Prospectus (the "Proxy
Statement-Prospectus") filed by UST and Chase in connection with the
Distribution and the Merger (as such form may be amended, supplemented or
otherwise modified from time to time, the "Contribution Agreement"), and (ii)
the Agreement and Plan of Distribution to be entered into prior to the
Distribution between UST and the Company, the form of which is an Exhibit to
the Company Form 10 and which is attached as Appendix B to the Proxy
Statement-Prospectus (as such form may be amended, supplemented or otherwise
modified from time to time, the "Distribution Agreement"). This Information
Statement is attached as Appendix H to the Proxy Statement-Prospectus. See
"The Company".
No consideration will be paid by UST stockholders for the shares of
Company Common Stock to be received by them in the Distribution. There is
currently no public trading market for the shares of Company Common Stock. The
Company intends to apply for designation of the Company Common Stock as a
national market security on the NASDAQ National Market System (the "National
Market System").
The Distribution has not yet been declared by the UST Board of Directors
(the "UST Board"), and, accordingly, the Distribution Record Date has not yet
been determined. The Distribution is conditioned on, among other things, the
satisfaction of all conditions (other than consummation of the Distribution)
to the parties' obligations to consummate the Merger provided for in the
Agreement and Plan of Merger, dated as of November 18, 1994 (as it may be
amended, supplemented or otherwise modified from time to time, the "Merger
Agreement"), among UST and Chase, which is attached as Appendix A to the Proxy
Statement-Prospectus to which this Information Statement is attached as
Appendix H. See "The Distribution -- Terms of the Distribution
Agreement -- Conditions to the Distribution". Also see "The
Merger -- Conditions" in the Proxy Statement-Prospectus to which this
Information Statement is attached as Appendix H.
The Company has filed a Registration Statement on Form 10 (including
exhibits and amendments thereto, the "Company Form 10") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), covering
shares of Company Common Stock to be received by UST stockholders in the
Distribution. This Information Statement constitutes both Appendix H to the
Proxy Statement-Prospectus and a part of the Company Form 10.
The date of this Information Statement is February 9, 1995.
H-1
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
INTRODUCTION......................... H-1 NOTES TO PRO FORMA CONDENSED
SUMMARY.............................. H-3 FINANCIAL STATEMENTS............... H-37
The Company........................ H-3 SELECTED FINANCIAL DATA.............. H-41
The Transactions................... H-3 MANAGEMENT'S DISCUSSION AND ANALYSIS
The Distribution................... H-4 OF FINANCIAL CONDITION AND RESULTS
SPECIAL FACTORS...................... H-7 OF OPERATIONS...................... H-42
Business To Be Conducted by the
Company......................... H-7 Results of Operations.............. H-42
Dividends and Dividend Policy...... H-7 Financial Condition................ H-54
Relationship with Chase; Reliance
on Services Agreement........... H-7 Asset Quality...................... H-59
Absence of Trading Market.......... H-8 Accounting Standards Not Yet
Lack of Historical Information..... H-8 Adopted......................... H-60
Reliance on Key Personnel.......... H-8 RECENT DEVELOPMENTS.................. H-61
Competition........................ H-8 MANAGEMENT........................... H-65
Government Monetary Policies....... H-8 Directors.......................... H-65
Bank Holding Company Act of 1956... H-9 Committees of the Board of
Other Federal and State Banking Directors....................... H-68
Regulation...................... H-9 Compensation of Directors.......... H-69
Substantial Stockholders; Certain Executive Officers................. H-70
Charter Provisions.............. H-10 Executive Compensation............. H-71
THE COMPANY.......................... H-11 BENEFICIAL OWNERSHIP................. H-73
General............................ H-11 EXECUTIVE COMPENSATION PLANS IN
Regulatory Matters................. H-13 EFFECT AFTER THE DISTRIBUTION...... H-75
Future Conduct of the Business..... H-16 Retirement Benefits................ H-76
Employees.......................... H-16 401(k) Plan and ESOP............... H-77
Properties......................... H-17 Annual Incentive Awards............ H-78
Legal Matters...................... H-17 New Stock Options.................. H-78
THE DISTRIBUTION..................... H-17 Other Features of Stock Plan and
Background of and Reasons for the Predecessor Performance Plans... H-79
Distribution.................... H-18 Executive Deferred Compensation
Terms of the Contribution Plan............................ H-82
Agreement....................... H-19 Change in Control Provisions....... H-82
Terms of the Distribution
Agreement....................... H-22 Benefit Protection Trusts.......... H-83
Terms of the Post Closing Covenants DESCRIPTION OF CAPITAL STOCK OF THE
Agreement....................... H-24 COMPANY............................ H-84
Terms of the Tax Allocation Authorized Capital Stock........... H-84
Agreement....................... H-28 Company Common Stock............... H-84
Certain Federal Income Tax Preferred Stock.................... H-85
Consequences.................... H-28 Stockholders Rights Plan........... H-85
RELATIONSHIP WITH CHASE.............. H-28 No Preemptive Rights............... H-88
Post Closing Covenants Agreement; Description of Certain Statutory,
Tax Allocation Agreement........ H-28 Charter and Bylaw Provisions.... H-89
Services Agreement................. H-29 Indemnification and Insurance...... H-90
LISTING AND TRADING OF COMPANY COMMON ADDITIONAL INFORMATION............... H-91
STOCK.............................. H-30 INDEX OF DEFINED TERMS............... H-92
CAPITALIZATION....................... H-31 APPENDIX I -- RESTATED CERTIFICATE OF
PRO FORMA CONDENSED FINANCIAL INCORPORATION OF NEW USTC HOLDINGS
STATEMENTS......................... H-32 CORPORATION........................ I-1
PRO FORMA CONDENSED STATEMENT OF APPENDIX II -- RESTATED BY-LAWS OF
CONDITION.......................... H-33 NEW USTC HOLDINGS CORPORATION...... II-1
PRO FORMA CONDENSED STATEMENT OF
INCOME............................. H-34
PRO FORMA CONDENSED STATEMENT OF
AVERAGE BALANCES................... H-36
<PAGE>
</TABLE>
H-2
<PAGE>
SUMMARY
The following summarizes certain information contained elsewhere in this
Information Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information included elsewhere in this
Information Statement, which should be read in its entirety. This Information
Statement is a part of the Company Form 10 and is attached as Appendix H to
the Proxy Statement-Prospectus dated February 9, 1995, of UST and Chase
relating to the Merger of UST with and into Chase, with Chase as the surviving
entity. See "Summary -- The Transactions" below. The Company did not
participate in the preparation of the Proxy Statement-Prospectus, and does not
have independent knowledge of the matters set forth therein, except to the
extent the Proxy Statement-Prospectus contains excerpts from this Information
Statement without material change. Immediately prior to the Distribution
described herein, the Company expects to effect a recapitalization pursuant to
which the 100 shares of common stock of the Company currently outstanding will
be exchanged for a total number of shares of Company Common Stock equal to the
total number of shares of UST Common Stock outstanding as of the Distribution
Record Date. See "Description of the Capital Stock of the Company". Based on
the number of shares of UST Common Stock outstanding on February 1, 1995 (and
assuming the exercise of stock options for 132,691 shares of UST Common Stock
prior to the Time of Distribution), it is estimated that approximately
9,622,000 shares of Company Common Stock will be distributed to UST
stockholders in the Distribution. An Index of Defined Terms used herein is
included at page 92 of this Information Statement.
For financial reporting purposes, the Company is a "successor registrant"
to UST and, as a result, all historical financial information of the Company
included in this Information Statement is the historical financial information
of UST. See "Pro Forma Condensed Financial Statements" for pro forma financial
statements for the Company giving effect to the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger.
The Company
The Company is a newly formed New York corporation that at the Time of
Distribution will be a bank holding company. At the Time of Distribution, the
Company's businesses, assets and liabilities will consist of the Core
Businesses, which include UST's asset management, private banking, special
fiduciary and corporate trust businesses. The Company will conduct the Core
Businesses primarily through New Trustco, a recently organized entity that at
the Time of Distribution will be a New York bank and trust company and a
wholly owned subsidiary of the Company. The Company was organized in New York
in January 1995. The mailing address of the Company's principal executive
offices is 114 West 47th Street, New York, New York 10036. See "The Company".
The Transactions
The Company is currently a wholly owned subsidiary of UST. UST has
entered into the Merger Agreement whereby, upon the terms and subject to the
conditions set forth therein, UST (which will then hold only the Chase
Acquired Business) will be merged with and into Chase, with Chase as the
surviving entity. Immediately prior to the Merger, the Core Businesses will be
transferred to the Company and subsidiaries of the Company (the "Internal
Reorganization"), and all the then outstanding shares of Company Common Stock
will be distributed to the then current stockholders of UST in the
Distribution on the basis of one share of Company Common Stock for each share
of UST Common Stock. See "The Distribution". At the Time of Distribution, the
Company will assume the name "U.S. Trust Corporation" and its then principal
subsidiary, New Trustco, will assume the name "United States Trust Company of
New York". As a consequence of the Merger, the Chase Acquired Business will be
owned by Chase. Accordingly, UST stockholders immediately prior to the Merger
will retain their proportionate equity interests in UST's Core Businesses in
the form of stock in the Company, which will acquire the Core Businesses prior
to the Distribution.
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Pursuant to the Merger Agreement, at the effective time of the Merger
(the "Effective Time") each issued and outstanding share of UST Common Stock
(other than any shares of UST Common Stock owned by Chase or any wholly owned
subsidiary of Chase or UST (other than in a fiduciary, custodial or similar
capacity) or any shares held by stockholders of UST who perfect their right,
under New York law, to dissent to the Merger) will be converted into the right
to receive Chase common stock, par value $2.00 per share ("Chase Common
Stock"), as described under "The Merger -- Terms of the Merger" in the Proxy
Statement-Prospectus.
Each of Chase, UST and USTNY, on the one hand, and the Company and New
Trustco, on the other hand, will agree, pursuant to the Post Closing Covenants
Agreement to be entered into prior to the Distribution by such parties, the
form of which is filed as an Exhibit to the Company Form 10 and which is
attached as Appendix D to the Proxy Statement-Prospectus (as such form may be
amended, supplemented or otherwise modified from time to time, the "Post
Closing Covenants Agreement"), to indemnify each other after the Distribution
with respect to certain losses, damages, claims and liabilities arising
primarily from the conduct of the Chase Acquired Business. See "The
Distribution -- Terms of the Post Closing Covenants Agreement". In addition,
each of UST and the Company will agree, pursuant to the Tax Allocation
Agreement to be entered into prior to the Distribution between Chase, UST and
the Company, the form of which is filed as an Exhibit to the Company Form 10
and which is attached as Appendix E to the Proxy Statement-Prospectus (as such
form may be amended, supplemented or otherwise modified from time to time, the
"Tax Allocation Agreement"), to indemnify the other against certain tax
liabilities. The Contribution Agreement, the Distribution Agreement, the Post
Closing Covenants Agreement and the Tax Allocation Agreement, which are
Exhibits to the Company Form 10 and are attached as Appendix B through
Appendix E to the Proxy Statement-Prospectus, are referred to collectively
herein as, the "Distribution Documents".
The foregoing is a brief summary of certain terms of the Distribution.
The Distribution Documents are more fully described herein under "The
Distribution". A description of the Merger and the Merger Agreement may be
found in the Proxy Statement-Prospectus to which this Information Statement is
attached as Appendix H.
The Distribution
Distributing Company..... UST
Securities to be
Distributed.............. All the outstanding shares of Company Common
Stock. Based on the number of shares of UST
Common Stock outstanding as of February 1, 1995
(and assuming the exercise of stock options for
132,691 shares of UST Common Stock prior to the
Time of Distribution), it is estimated that
approximately 9,622,000 shares of Company Common
Stock will be distributed to UST stockholders in
the Distribution. See "Distribution Ratio"
immediately below.
Distribution Ratio....... One share of Company Common Stock for each share
of UST Common Stock outstanding on the
Distribution Record Date.
Time of Distribution..... The Distribution is expected to be effective
immediately prior to the Effective Time. Stock
certificates for shares of Company Common Stock
will be mailed as soon as practicable after the
Time of Distribution. See "The
Distribution -- Terms of the Distribution
Agreement -- Method of Effecting the
Distribution".
Distribution Record
Date..................... It is expected that the Distribution Record Date
will be established as the date on which the Time
of Distribution occurs.
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Trading Market........... The Company expects to apply for designation of
the Company Common Stock as a national market
security on the National Market System. See
"Listing and Trading of Company Common Stock".
Conditions to
Distribution............. Consummation of the Distribution is subject to
the conditions set forth in the Distribution
Agreement. See "The Distribution -- Terms of the
Distribution Agreement -- Conditions to the
Distribution".
Tax Consequences......... It is a condition to the Distribution that UST
receive a private letter ruling (the "Private
Letter Ruling") from the Internal Revenue Service
(the "Service"), reasonably satisfactory in form
and substance to UST and Chase, that, among other
things, the receipt of Company Common Stock by
UST stockholders pursuant to the Distribution
will be tax free for Federal income tax purposes.
See "The Distribution -- Certain Federal Income
Tax Consequences".
Dividends After the
Distribution........... As a bank holding company, the Company will be
dependent upon distributions from its
subsidiaries in order to pay cash dividends.
Because New Trustco will be a newly organized
bank subsidiary of the Company, it is not
anticipated that it will be able to pay dividends
other than out of its earnings in respect of
periods after the Time of Distribution. Federal
and state regulatory agencies also have the
authority to limit further the Company's banking
subsidiaries' payment of dividends based on other
factors, such as the maintenance of adequate
capital for such banking subsidiaries. The
Company currently anticipates that its annual
cash dividend will be approximately $1.00 per
share. The timing and amount of any future
dividends, however, will depend on circumstances
existing at the time, including earnings, cash
requirements, applicable federal and state laws
and regulations and policies and other factors
deemed relevant by the Company's Board of
Directors (the "Company Board"), including the
amount of dividends payable to the Company by its
subsidiary banks. See "Special
Factors -- Dividends and Dividend Policy".
Certain Provisions of the
Company's Charter and
Bylaws................. Certain provisions of the Company's Certificate
of Incorporation, as it is anticipated to be
amended and restated prior to the Distribution
substantially as set forth in the form of the
Restated Certificate of Incorporation of the
Company attached to this Information Statement as
Appendix I (as so amended and restated, the
"Restated Certificate"), and the Company's
Bylaws, as they are anticipated to be amended and
restated prior to the Distribution substantially
as set forth in the form of the Restated Bylaws
of the Company attached to this Information
Statement as Appendix II (as so amended and
restated, the "Restated Bylaws"), may be deemed
to have the effect of making difficult an
acquisition of control of the Company in a
transaction not approved by the Company Board.
See "Special Factors -- Substantial Stockholders;
Certain Charter Provisions" and "Description of
Capital Stock of the Company -- Description of
Certain Statutory, Charter and Bylaw Provisions".
Relationship with Chase
After the Distribution... In the Post Closing Covenants Agreement, Chase,
UST and USTNY, on the one hand, and the Company
and New Trustco, on the other hand, will agree to
certain indemnification provisions arising
primarily from the conduct of the Chase Acquired
Business. The Company also will agree
H-5
<PAGE>
to abide by certain noncompetition provisions
relating to competing with Chase in the
securities processing business. In addition, at
the Time of Distribution, New Trustco will enter
into a services agreement (the "Services
Agreement") with a subsidiary of Chase pursuant
to which such subsidiary will agree to furnish
necessary securities processing, custodial, data
processing and other services to New Trustco and
its affiliates. See "Special
Factors -- Relationship with Chase; Reliance on
Services Agreement", "The Distribution -- Terms
of the Post Closing Covenants Agreement" and
"Relationship with Chase".
Special Factors.......... Stockholders should carefully consider the
matters discussed under the section entitled
"Special Factors" in this Information Statement.
H-6
<PAGE>
SPECIAL FACTORS
Business To Be Conducted by the Company
Immediately prior to the Time of Distribution, the Core Businesses will
be transferred to, and will comprise all of the businesses, assets and
liabilities of, the Company. The businesses, assets and liabilities of the
Company will not include the Chase Acquired Business, which accounted for
approximately $113.9 million, or 37%, of UST's consolidated revenues for the
nine months ended September 30, 1994. As a result, the Company will be
substantially smaller than UST and will derive its revenues from a less
diverse group of businesses and assets. While the Company intends to pursue
strategies to expand its businesses, there can be no assurance that the
Company will be successful in implementing such strategies or that, if
implemented, such strategies will result in the growth of the Company's
businesses.
Dividends and Dividend Policy
As a bank holding company, the Company will be dependent upon
distributions from its subsidiaries in order to pay cash dividends. Because
New Trustco will be a newly organized bank subsidiary of the Company, it is
not anticipated that it will be able to pay dividends other than out of its
earnings in respect of periods after the Time of Distribution. Federal and
state regulatory agencies also have the authority to limit further the
Company's banking subsidiaries' payment of dividends based on other factors,
such as the maintenance of adequate capital for such banking subsidiaries. The
Company currently anticipates that its annual cash dividend will be
approximately $1.00 per share. The timing and amount of any future dividends,
however, will depend on circumstances existing at the time, including
earnings, cash requirements, applicable federal and state laws and regulations
and policies and other factors deemed relevant by the Company Board, including
the amount of dividends payable to the Company by its subsidiary banks.
Relationship with Chase; Reliance on Services Agreement
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and the Company and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, the
Company has agreed, pursuant to the Post Closing Covenants Agreement, for a
period of four years after the Effective Time, not to engage in, or compete
with Chase with respect to, the securities processing business, subject to
certain limited exceptions. See "The Distribution -- Terms of the Post Closing
Covenants Agreement -- The Company's Noncompetition Agreement".
As part of the Merger, Chase will acquire UST's related back office
operations. Immediately prior to the Effective Time, Chase's principal bank
subsidiary and New Trustco will enter into the Services Agreement pursuant to
which such subsidiary will furnish necessary securities processing, custodial,
data processing and other services to New Trustco and its affiliates. The
initial term of the Services Agreement will be for five years beginning on the
date of consummation of the Merger (the "Closing Date"), with certain renewal
options. In consideration of the services provided to it under the Services
Agreement, during the initial term, New Trustco will pay to Chase's subsidiary
an annual base fee of $10 million, which is significantly less than New
Trustco's estimate of the annual cost of providing such services to itself.
See "Relationship with Chase".
The Company will have minimal securities processing or back office
capabilities and will rely entirely on Chase to provide such services under
the Services Agreement, including bank processing services for the Company's
private banking clients and custodial and processing services for the
Company's asset and investment management clients. The Company's goodwill and
its relationship with its clients and customers could be adversely affected by
any failure or inability of Chase to provide the level of services required by
the Services Agreement.
H-7
<PAGE>
Absence of Trading Market
There is no existing trading market for the Company Common Stock and
there can be no assurance as to the establishment or continuity of any such
market. The Company expects to apply for designation of the Company Common
Stock as a national market security on the National Market System and such
listing, or listing on the American Stock Exchange or the New York Stock
Exchange, is a condition to consummation of the Distribution. However, there
can be no assurance as to the price at which the Company Common Stock will
trade or that such price will not be significantly below the book value per
share of the Company Common Stock.
Lack of Historical Information
The Company is a newly formed corporation that currently has no
operations. Immediately prior to the Time of Distribution, the businesses,
assets and liabilities of the Company will consist solely of the Core
Businesses. For financial reporting purposes, the Company is a "successor
registrant" to UST and, as a result, the historical financial information of
the Company is the historical financial information of UST. There is no
historical information for the Company on a stand-alone basis that excludes
the financial results of the Chase Acquired Business. The Company expects to
begin reporting such information commencing with its quarterly report for the
fiscal quarter ending June 30, 1995.
Reliance on Key Personnel
The Company's business is managed by key executive officers, the loss of
whom could have a material adverse effect on the Company. The Company believes
that its continued success will depend in large part on its ability to attract
and retain highly skilled and qualified personnel. The Company's management
has principal responsibility for the review of the Company's strategic plan
and for recommendations to the Company Board, which exercises final authority
over major business decisions. Therefore, the Company is dependent upon the
ability of its management to select what it believes are appropriate business
opportunities (including acquisitions) for the Company. In the event that any
officers or directors of the Company cease to be associated with the Company,
the Company will seek to find a qualified person or persons to fill their
positions. There can, however, be no assurance that such individuals could be
engaged by the Company. See "Management".
Competition
The Company's asset management and private banking businesses will
compete with investment counselling firms and with investment bankers and
brokers which offer advisory services and, to some extent, with mutual funds.
The trust and agency business is also highly competitive. Many commercial
banks, with larger capitalizations and deposits, and several smaller
specialized banks throughout the country provide similar fiduciary services.
In both its private banking and its corporate trust activities, the
Company will operate in an intensely competitive environment, both as to
service and price, with other banks principally in the New York metropolitan
area, California, Florida, Texas and the Pacific Northwest.
Government Monetary Policies
Monetary authorities have a significant impact on the operating results
of the Company and other financial service institutions. The decisions of the
Board of Governors of the Federal Reserve System (the "Board of Governors")
affect the supply of money and member bank reserves by means of open market
operations in U.S. Government securities or by changes in the discount rate or
reserve requirements. The Board of Governors' actions have an important
influence on the growth of bank loans and investments and the level of
interest charged for loans and paid on deposits. Because of changing
conditions in the money markets, as a result of actions by the Board of
Governors and other regulatory authorities, interest rates, credit
availability, deposit levels and bond and stock prices may change materially
due to circumstances beyond the control of the Company.
H-8
<PAGE>
Bank Holding Company Act of 1956
At the Time of Distribution, the Company will be a bank holding company
within the meaning of the Federal Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act"), and will be so registered with the Board of
Governors. As such, the Company will be required to file with the Board of
Governors annual reports and other information and is subject to examination
regarding its business operations and those of its subsidiaries. Further, a
bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provision of any property or service.
The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Board of Governors before acquiring
substantially all the assets of any bank or before acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any bank
which is not already majority-owned. Until September 29, 1995, the Bank
Holding Company Act prohibits the acquisition by a bank holding company of
shares of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by a statute of the state in which the bank to be
acquired is located. The Bank Holding Company Act also prohibits a bank
holding company, with certain exceptions, from acquiring more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than banking or managing or controlling banks or furnishing
services to or performing services for its subsidiary banks. One of the
exceptions to this prohibition is engaging in, or acquiring shares of a
company that engages in, activities which the Board of Governors has
determined to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Under current regulations, bank
holding companies and their subsidiaries are permitted to engage in such
banking and banking-related businesses as equipment leasing, computer service
bureau operations, acting as investment or financial adviser, performing
fiduciary, agency and custodial services, certain types of real estate
financing and providing management consulting advice to non-affiliated banks.
In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the Board of Governors
considers a number of factors, including the expected benefits to the public
such as greater convenience, increased competition or gains in efficiency, as
weighed against the risks or possible adverse effects such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. The Board of Governors is also
empowered to differentiate between activities commenced de novo and activities
commenced through acquisition of a going concern. The Board of Governors may
order a bank holding company to terminate any activity or its ownership or
control of a nonbank subsidiary if the Board of Governors finds that such
activity or ownership or control constitutes a serious risk to the financial
safety, soundness or stability of a subsidiary bank and is inconsistent with
sound banking principles or statutory purposes.
Other Federal and State Banking Regulation
The Superintendent of Banks of the State of New York has the discretion
to examine the affairs of the Company for the purpose of determining the
financial condition of New Trustco. Prior to the Time of Distribution, New
Trustco and its operations will be subject to Federal and New York State laws
applicable to commercial banks and trust companies and to regulation and
examination by both Federal and New York banking authorities. Government
regulations affecting New Trustco and its operations will include minimum
capital requirements, the requirement to maintain reserves against deposits,
restrictions on the nature and amount of loans which may be made by New
Trustco and restrictions relating to investments and other activities.
New York banks are barred from acting as a fiduciary in a number of
states, and in a number of other states where they may and do act as a
fiduciary, their activities are limited by state law and regulations.
The Company, through its ownership of a savings bank in Florida, will be
a savings bank holding company. Accordingly, the Company and such savings bank
will be subject to regulation and examination by the Office of Thrift
Supervision. The banking institutions that will be subsidiaries of the Company
in California and Texas are subject to regulation and examination by the
Office of the Comptroller of the
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<PAGE>
Currency. The banking institution that will be the Company's New Jersey
subsidiary is subject to regulation and examination by the Banking Department
of the State of New Jersey. The banking institution that will be the Company's
Oregon subsidiary is subject to regulation and examination by the Division of
Finance and Corporate Securities of the State of Oregon.
The Federal Reserve Act and the Federal Deposit Insurance Act impose
certain restrictions on loans by the bank subsidiaries to the Company and each
other. In addition, the Company and its subsidiaries are subject to
restrictions imposed by the Banking Act of 1933 with respect to engaging in
certain aspects of the securities business.
Substantial Stockholders; Certain Charter Provisions
Immediately following the Distribution, directors and executive officers
of the Company will (assuming the exercise of stock options for 67,975 shares
of UST Common Stock prior to the Time of Distribution) beneficially own shares
of Company Common Stock representing over 3.1% of the voting power of all the
Company's then outstanding voting securities. In addition, immediately
following the Distribution, the 401(k) Plan and ESOP of United States Trust
Company of New York and Affiliated Companies (the "401(k) Plan and ESOP") will
beneficially own shares of Company Common Stock representing over 14.5% of the
voting power of all the Company's then outstanding voting securities. In
addition, following the Merger, the 401(k) Plan and ESOP will, over a period
of time, sell shares of Chase Common Stock it receives in connection with the
Merger, and will purchase shares of Company Common Stock in the open market
with the proceeds from the sale of such shares. See "Beneficial Ownership".
Certain provisions of the Restated Certificate and the Restated Bylaws
may be deemed to have the effect of making difficult an acquisition of control
of the Company in a transaction not approved by the Company Board. These
provisions include the ability of the Company Board to issue shares of
preferred stock in one or more series without further authorization of the
Company stockholders and certain other provisions described under "Description
of Capital Stock of the Company". Many of these provisions are also present in
UST's certificate of incorporation and bylaws as currently in effect, and
generally are designed to permit the Company to develop its businesses and
foster its long-term growth without the disruption caused by the threat of a
takeover not deemed by the Company Board to be in the best interests of the
Company and its stockholders. These provisions may also have the effect of
discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company even though such a transaction might be
economically beneficial to the Company and its stockholders. Furthermore, the
Company intends, in connection with the Distribution, to adopt a stockholder
rights plan, which may have a similar effect. See "Description of Capital
Stock of the Company -- Stockholder Rights Plan".
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THE COMPANY
General
The Company is a newly formed New York corporation that at the Time of
Distribution will be a bank holding company. At the Time of Distribution, the
Company will own the Core Businesses, which include UST's asset management,
private banking, special fiduciary and corporate trust businesses. The Company
will conduct the Core Businesses primarily through New Trustco, a recently
organized entity that at the Time of Distribution will be a New York bank and
trust company and a wholly owned subsidiary of the Company.
The Company was organized in New York in January 1995 and, pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"), issued 100 shares of common stock, par
value $1.00 per share, to UST on January 23, 1995 for par value. The Company
is currently a wholly owned subsidiary of UST.
Set forth below is a description of UST's businesses that will be
transferred to the Company immediately prior to the Time of Distribution.
Asset Management and Private Banking
UST's principal business is providing asset management services to
individuals, families and institutions and private banking.
In the personal asset management and private banking business, UST's
primary focus is the top 2% wealthiest Americans, those with over $200,000 in
income or $450,000 in investable assets. UST believes (based on syndicated
market research studies conducted by Payment Systems, Inc., an independent
research firm) that this market is growing at 14% to 20% annually and that
less than one-third of the assets in this market are professionally managed.
The personal asset management and private banking business is highly
competitive and comprised of a wide variety of institutions vying for
business, including banking institutions, brokerage firms, investment
management companies and mutual fund companies. No one competitor dominates
this market. UST believes that it differentiates itself from its competitors
by providing both investment management and comprehensive wealth management
services. UST's full range of investment management services for the affluent
includes U.S. and international equities, fixed-income, balanced portfolios,
alternative investments, mutual funds and 401(k) plans. UST also provides
private banking, trust and fiduciary services, estate and tax planning,
financial planning, custody, insurance services and consolidated record
keeping.
UST has divided its personal market into three segments and tailored its
products and service delivery to each. Its primary market consists of
individuals with $2 million to $50 million in assets. Investment portfolios
for this market segment are generally individually managed and require the use
of a number of UST's services. UST is currently expanding its line of products
for this market segment by adding a variable annuity product and a venture
capital fund.
For the second segment of UST's personal market -- those customers with
$250,000 to $2 million in assets -- UST provides investment management
services, principally through the "UST Master Fund" family of 25 mutual funds.
UST's "Wealth Management Account" assets now total over $600 million with an
average account balance size of $650,000. UST's private banking services are
also responsible for attracting this portion of UST's market, comprised of
generally younger, earned wealth customers whose assets are expected to grow
over time.
The third segment of UST's personal market includes families with over
$50 million in assets. UST currently serves well over 100 such families. To
help meet the increasingly sophisticated and complex needs of these families,
UST acquired CTC Consulting, Inc. ("CTC") in July of 1993. CTC provides
independent counseling on investment policy, manager selection and performance
measurement. UST offers an enhanced master custody product for this market, as
well as specialized consulting services for family-owned businesses. UST has
also expanded its family office capabilities to serve clients in this market.
H-11
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A major strategic goal of UST's personal asset management and private
banking business for over a decade has been national expansion. Personal asset
management and private banking clients usually require service to be provided
at the local level. Expanding beyond its New York City headquarters to meet
these demands, UST has established offices nationwide in areas UST believes
are comprised of concentrated wealth: California, Connecticut, Florida, New
Jersey, Texas and the Pacific Northwest. UST's future goals include expansion
in those regions where UST currently provides asset management services and in
other areas of wealth concentration and creation.
UST's institutional asset management business provides a wide range of
investment management services directly to institutional clients: domestic and
international equity, fixed-income, money market and balanced portfolios, as
well as structured investments, index funds, alternative investments and cash
management.
UST has placed increased emphasis on the sales effort supporting the
personal asset management business, including in recent years a three-fold
increase in the size of its sales force and the implementation a decade ago of
a generous sales incentive program for all employees. In addition, UST
possesses a dedicated sales force committed to the institutional asset
management business.
UST believes providing its investment management services through
third-party distribution channels is an increasingly important aspect of its
asset management business. UST is broadening the distribution of its UST
Master Fund family and its "Excelsior Funds", introduced in 1994 for the
institutional market, through small banks, broker/dealers and private
labeling. UST also has a "wrap" program through which UST's fixed-income
investment products are sold by five brokerage firms and assets now total over
$500 million with approximately 900 accounts. UST's proprietary variable
annuity, developed jointly with The Chubb Life Companies ("Chubb"), is linked
to clones of the UST Master Funds and will be sold through over 200
independent third-party distributors, as well as by UST and Chubb.
In the rapidly growing 401(k) market, UST is currently developing a
bundled product aimed at plans with more than $5 million in assets. UST will
provide investment management for the bundled product -- using a subset of the
Excelsior Funds and an asset allocation model to create a "life stages
portfolios" product. This product will also feature administration by UST,
third-party record keeping and an employee education component.
UST provides private banking services through its four offices in New
York City and through its regional offices in California, Connecticut,
Florida, New Jersey and Texas. Residential mortgages continue to be the
principal credit product in private banking, accounting for nearly two-thirds
of the portfolio. Private banking loans represent almost 90% of UST's total
average loans, which amounted to $1.3 billion in the third quarter of 1994.
The remaining loans are primarily comprised of credit facilities to securities
firms and other financial institutions. UST's credit quality continues to be
strong. As a percentage of total average loans, net loan charge-offs for the
first nine months of 1994, on an annualized basis, were five basis points.
Asset management and private banking customer deposits comprise a
principal source of funds employed to finance the loan portfolio. For the
nine-month period ended September 30, 1994, non-interest bearing asset
management and private banking deposits were approximately $270 million and
interest bearing deposits were approximately $1.2 billion. Historically, these
deposits have been a stable source of funds to UST.
Special Fiduciary Services
UST provides investment, fiduciary and consulting services to employee
benefit plans that invest in employer stocks and to individuals and families
with substantial ownership positions in public or private companies. UST
specializes in providing these services to large, complex plans and believes
it is the leading provider of such services in this segment of the market.
Competition in this segment of the market comes from several financial
industry participants, including primarily other trust companies.
Corporate Trust and Agency
One of the 10 largest corporate trustees in the country, UST is a leader
in providing trust, agency and related services to public and private
corporations, municipalities and financial institutions. Corporate trust
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and agency assets currently total approximately $152 billion. UST's
independence and established long-term relationships are an advantage in the
indenture trusteeship business, where UST concentrates on the high margin
segment of the market. Competitors include money center and regional banks.
During each of the past three years, UST has been the leading trustee in
New York State for new municipal long-term debt and ranks among the top three
trustees nationally.
UST is also a leader in providing trustee services for complex new types
of securities, as well as a provider of bond immobilization services. UST
believes these segments to be two of the fastest growing areas of the
corporate trust and agency business.
UST has strengthened its national presence in the corporate trust and
agency business with the opening of corporate trust offices in California and
Texas.
Regulatory Matters
General
The Company is a legal entity separate and distinct from its
subsidiaries. The ability of holders of debt and equity securities of the
Company to benefit from the distribution of assets of any subsidiary upon the
liquidation or reorganization of such subsidiary is subordinate to prior
claims of creditors of the subsidiary except to the extent that a claim of the
Company as a creditor may be recognized.
There are various statutory and regulatory limitations on the extent to
which banking subsidiaries of the Company can finance or otherwise transfer
funds to the Company or its nonbanking subsidiaries, whether in the form of
loans, extensions of credit, investments or asset purchases. Such transfers by
any subsidiary bank to the Company or any nonbanking subsidiary are limited in
amount to 10% of the bank's capital and surplus and, with respect to the
Company and all such nonbanking subsidiaries, to an aggregate of 20% of each
such bank's capital and surplus. Furthermore, loans and extensions of credit
are required to be secured in specified amounts and are required to be on
terms and conditions consistent with safe and sound banking practices.
There are also regulatory limitations on the payment of dividends
directly or indirectly to the Company from its banking subsidiaries. Under
applicable banking statutes, at December 31, 1994, the banking institutions
that will be subsidiaries of the Company (which do not include USTNY) could
have declared additional dividends of approximately $8.0 million. Because New
Trustco will be a newly organized bank subsidiary of the Company, it is not
anticipated that it will be able to pay dividends other than out of its
earnings in respect of periods after the Time of Distribution. Federal and
state regulatory agencies also have the authority to limit further the
Company's banking subsidiaries' payment of dividends based on other factors,
such as the maintenance of adequate capital for such banking subsidiaries.
Under the policy of the Board of Governors, the Company is expected to
act as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary bank in circumstances where it might not
do so absent such policy. In addition, any subordinated loans by the Company
to any of the subsidiary banks would also be subordinate in right of payment
to deposits and obligations to general creditors of such subsidiary bank.
Further, the Crime Control Act of 1990 provides that in the event of the
bankruptcy of the Company, any commitment by the Company to bank regulators to
maintain the capital of a banking subsidiary will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
In addition, as a bank holding company within the meaning of the Bank
Holding Company Act, the Company is required to obtain the prior approval of
the Board of Governors before making certain acquisitions, including the
acquisition of more than 5% of the voting shares of any company that is not a
bank (subject to limited exceptions). See "Special Factors -- Bank Holding
Company Act of 1956".
The Company's banking subsidiaries will be subject to other Federal and
state banking regulations, including regulation by the Superintendent of Banks
of the State of New York, the Office of Thrift Supervision, the Comptroller of
the Currency, the Banking Department of the State of New Jersey and the
Division of Finance and Corporate Securities of the State of Oregon. See
"Special Factors -- Other Federal and State Banking Regulation".
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FIRREA
As a result of the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act ("FIRREA") on August 9, 1989, any or all of the
Company's subsidiary banks can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the Federal Deposit Insurance
Corporation ("FDIC") after August 9, 1989, in connection with (a) the default
of any other of the Company's subsidiary banks or (b) any assistance provided
by the FDIC to any other of the Company's subsidiary banks in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur without
regulatory assistance.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), which was enacted on December 19, 1991, provides for, among other
things, increased funding for the Bank Insurance Fund (the "BIF") of the FDIC
and expanded regulation of depository institutions and their affiliates,
including parent holding companies. A summary of certain provisions of FDICIA
and its implementing regulations is provided below.
Risk Based Deposit Insurance Assessments. A significant portion of the
additional funding to BIF is in the form of borrowings to be repaid by
insurance premiums assessed on BIF members. In addition, the FDICIA provides
for an increase in the ratio of the reserves to insured deposits of the BIF to
1.25% by the end of the 15-year period that began with the semi-annual
assessment period ending December 31, 1991, also to be financed by insurance
premiums. Insurance premiums for a BIF-Insured institution are based on
whether the institution is within the definition of "well capitalized",
"adequately capitalized" or "undercapitalized". For purposes of the risk-based
assessment system, a well capitalized institution is one that has a total
risk-based capital ratio of 10% or more, a Tier 1 risk-based capital of 6% or
more, and a leverage ratio of 5% or more. An adequately capitalized
institution has a total risk-based capital ratio of 8% or more, a Tier 1
risk-based capital ratio of 4% or more, and a leverage ratio of 4% or more. An
undercapitalized institution is one that does not meet either of the foregoing
definitions. The actual assessment rate applicable to a particular
institution, therefore, depends in part upon the risk assessment
classification so assigned to the institution by the FDIC. At September 30,
1994, each of the Company's banking subsidiaries was classified as "well
capitalized" under these provisions.
Prompt Corrective Action. The FDICIA also provides the federal banking
agencies with broad powers to take prompt corrective action to resolve
problems of insured depository institutions, depending upon a particular
institution's level of capital. The FDICIA establishes five tiers of capital
measurement ranging from "well capitalized" to "critically undercapitalized".
A depository institution may be deemed to be in a capitalization category that
is lower than is indicated by its actual capital position under certain
circumstances. At September 30, 1994, each depository institution that will be
a subsidiary of the Company was classified as "well capitalized" under the
prompt corrective actions regulations described above.
Any depository institution that is undercapitalized and which fails to
meet regulatory capital requirements specified in the FDICIA must submit a
capital restoration plan guaranteed by the bank holding company controlling
such institution, and the regulatory agencies may place limits on the asset
growth and restrict activities of the institution (including transactions with
affiliates), require the institution to raise additional capital, dispose of
subsidiaries or assets or to be acquired and, ultimately, require the
appointment of a receiver. In addition to the requirement of mandatory
submission of a capital restoration plan, under the FDICIA, an
undercapitalized institution may not pay management fees to any person having
control of the institution nor may an institution, except under certain
circumstances and with prior regulatory approval, make any capital
distribution if, after making such payment or distribution, the institution
would be undercapitalized. Further, undercapitalized depository institutions
are subject to restrictions on borrowing from the Board of Governors.
Undercapitalized and significantly undercapitalized depository
institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately
capitalized,
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requirements to reduce total assets and cessation of receipt of deposits from
correspondent banks. In addition, significantly undercapitalized depository
institutions also are prohibited from awarding bonuses or increasing
compensation of senior executive officers until approval of a capital
restoration plan. Critically undercapitalized depository institutions are
subject to appointment of a receiver or conservator.
Brokered Deposits and Pass-Through Deposit Insurance Limitation. Under
the FDICA, a depository institution that is well capitalized may accept
brokered deposits and offer interest rates on deposits "significantly higher"
than the prevailing rate in its market. A depository institution that is
adequately capitalized may accept brokered deposits if it obtains the prior
approval of the FDIC. An undercapitalized depository institution may not
accept brokered deposits. In the Company's opinion, these limitations do not
have a material effect on the Company.
Safety and Soundness Standards. The FDICIA directs each federal banking
agency to prescribe safety and soundness standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses without impairing capital and, to the extent feasible, a minimum ratio
of market value to book value for publicly traded shares. Proposed regulations
to implement the safety and soundness standards were issued in November 1993.
The ultimate cumulative effect of these standards cannot currently be
forecast.
The FDICIA also contains a variety of other provisions that may affect
the Company's operations, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, and the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch.
Capital Guidelines
Under the capital guidelines adopted by the Board of Governors, the
minimum ratio of total capital to the risk-adjusted assets (including certain
off-balance sheet items, such as standby letters of credit) of a bank holding
company is 8%. At least half of the total capital is to be comprised of common
equity, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries and a limited amount of perpetual preferred stock,
less goodwill ("Tier 1 capital"). The remainder may consist of perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
other preferred stock and a limited amount of loan loss reserves ("Tier 2
capital"). In addition, the Board of Governors requires a leverage ratio (Tier
1 capital to total assets, net of goodwill) of 3% for bank holding companies
that meet certain specified criteria, including that they have the highest
regulatory rating. Such rule indicates that the minimum leverage ratio should
be 1% to 2% higher for holding companies undertaking major expansion programs
or that do not have the highest regulatory rating. The state chartered and
national banking institutions that will be subsidiaries of the Company are
subject to similar capital requirements.
The federal banking agencies continue to indicate their desire to raise
capital requirements applicable to banking organizations, and recently
proposed amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the determination of a bank's minimum
capital requirements. The proposed amendments are intended to require that
banks effectively measure and monitor their interest rate risk and that they
maintain capital adequate for that risk. Under the proposed amendments, banks
with interest rate risk in excess of a defined supervisory threshold would be
required to maintain additional capital beyond that generally required. In
addition, the federal banking agencies recently proposed amendments to their
risk-based capital standards to provide for the concentration of credit risk
and certain risks arising from nontraditional activities, as well as a bank's
ability to manage these risks, as important factors in assessing a bank's
overall capital adequacy.
As of September 30, 1994, the capital ratios of UST and of each of the
institutions that will be subsidiaries of the Company are well capitalized.
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Under FIRREA and FDICIA, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including the
termination of deposit insurance by the FDIC and seizure of the institution.
On September 29, 1994, President Clinton signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Act"). The Interstate Act generally authorizes bank holding companies to
acquire banks located in any state commencing one year after its enactment. In
addition, it generally authorizes national and state chartered banks to merge
across state lines (and to thereby create interstate branches) commencing June
1, 1997. Under the provisions of the Interstate Act, states are permitted to
"opt out" of this latter interstate branching authority by taking action prior
to the commencement date. States may also "opt in" early (i.e., prior to June
1, 1997) to the interstate merger provisions. Further, the Interstate Act
provides that states may act affirmatively to permit de novo branching by
banking institutions across state lines.
Future Conduct of the Business
Seligman Acquisition
The Company's business strategy is to expand in areas where personal
wealth is concentrated. On January 17, 1995, UST announced that it had agreed
to acquire the individual account business of J.&W. Seligman and Co. and to
purchase J.&W. Seligman Trust Company for up to $20 million in cash. Such
businesses will be transferred to the Company in the Internal Reorganization.
Consistent with its strategy, the Company plans to continue to seek ways to
expand its presence in California, Florida, Texas, the Pacific Northwest and
the greater New York City region, as well as to expand opportunistically into
new areas of wealth concentration.
Following the Distribution, the Company will continue to examine other
strategic alternatives, including possible acquisitions, strategic alliances,
joint ventures and investments in an effort to increase stockholder value.
Use of Names
Immediately following the Merger, the Company will assume the name "U.S.
Trust Corporation", and New Trustco will assume the name "United States Trust
Company of New York". Each of the Company and New Trustco will conduct
business under those names in the future. As part of the Internal
Reorganization, the Company will acquire all trademarks, tradenames and other
intellectual property necessary to the conduct of the Core Businesses.
Relationship with Chase
In addition, pursuant to the Services Agreement, following the Merger, a
subsidiary of Chase will provide the Company with certain essential back
office operations. Pursuant to the Post Closing Covenants Agreement, the
Company has also agreed for a period of four years after the Effective Time
not to engage in, or compete with Chase with respect to, the securities
processing business, subject to limited exceptions. See "Special
Factors -- Relationship with Chase; Reliance on Services Agreement" and
"Relationship with Chase".
Management
The management of the Company following the Distribution will be
substantially the same as the management of UST prior to the Distribution.
Employees
It is anticipated that immediately following the Distribution, the
Company will employ approximately 1,350 persons.
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Properties
The Company will lease its principal executive office in New York, New
York which is currently leased by UST. Additional executive offices currently
owned or leased by UST will be transferred to and owned or leased by the
Company in New York, New Jersey, Connecticut, Washington D.C., California,
Texas and Florida. The Company's management believes that all the properties
to be owned or leased by the Company following the Distribution will be
adequate for the Company's business needs and will be in good operating
condition.
Legal Matters
There are various pending and threatened actions and claims against UST
and its subsidiaries for which liability has been denied and which will be
vigorously contested. The Company will assume any liabilities associated with
these actions pursuant to the Contribution Agreement. Included among these are
the following cases:
On December 1, 1994, a complaint was filed against USTNY in the Supreme
Court of the State of New York, County of New York, entitled Ithaca Partners,
L.P. and Gabriel Capital, L.P. v. United States Trust Company. USTNY is
Trustee under an Indenture dated October 1, 1988 (the "Indenture") under which
Linter Textiles Corporation Limited ("Linter Textiles") issued $200 million in
principal amount of Senior Subordinated Debentures (the "Debentures"). Linter
Textiles, a corporation organized under the laws of Australia, was a holding
company for various operating subsidiaries (the "Linter Subsidiaries") and was
also a subsidiary of Linter Group Limited ("Linter Group"). Linter Group,
Linter Textiles and the Linter Subsidiaries are being liquidated under
Australian law; however, based on the parties' contractual priorities, the
proceeds of the liquidation will be insufficient to satisfy the claims of the
holders of the Debentures. The plaintiffs are two limited partners who claim
to have purchased $97.43 million in principal amount of the Debentures.
Plaintiffs allege that the Debentures were issued pursuant to a fraudulent
prospectus which failed to disclose Linter Textiles' intention to incur $323
million (Australian) in senior indebtedness through guaranties of indebtedness
of Linter Group and to cause the Linter Subsidiaries to guaranty the senior
indebtedness. The complaint asserts that covenants in the Indenture were
breached in connection with the execution of those guaranties and the
guaranties of the Debentures delivered by the Linter Subsidiaries to USTNY in
connection therewith and asserts causes of action for breach of contract and
breach of fiduciary duty based on USTNY failing to take action itself or to
advise holders of the Debentures that Linter Textiles and the Linter
Subsidiaries were incurring substantial indebtedness on behalf of the Linter
Group. The complaint seeks unspecified damages measured by the amount of the
diminution from the face value of the Debentures suffered as a result of the
existence of the guaranties of senior indebtedness, plus interest and
plaintiff's expenses incurred in connection with the liquidation proceedings
in Australia.
In July 1990, an action captioned "Official Committee of Unsecured
Creditors of Fulfillment Associates, Inc. v. Louis Freedman et al. v. United
States Trust Company of New York" was brought in the United States Bankruptcy
Court for the Eastern District of New York. The complaint was filed by the
Creditors Committee of Fulfillment Associates, Inc. (the "CCFA") against
stockholders of CCFA who sold their shares in a leveraged buyout financed by
USTNY. The complaint seeks damages in excess of $500,000 and alleges a
fraudulent transfer in the granting of liens to USTNY on the assets of CCFA,
abuse of fiduciary duty by the stockholders and breach of employment
agreements entered into by the stockholders with CCFA. The stockholders have
filed a third-party complaint against USTNY in an unspecified amount seeking
indemnification or contribution for all amounts for which the stockholders may
be held liable to CCFA. USTNY's motion to dismiss the third-party complaint is
pending before the Bankruptcy Court.
THE DISTRIBUTION
This section of the Information Statement describes certain aspects of
the proposed Distribution. To the extent that they relate to the Distribution
Documents, the following descriptions do not purport to be complete and are
qualified in their entirety by reference to the Distribution Documents, which
are Exhibits to the Company Form 10 and are attached as Appendix B through E
to the Proxy Statement-Prospectus and are
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incorporated herein by reference. All stockholders are urged to read the
Distribution Documents in their entirety.
Background of and Reasons for the Distribution
UST's management has regularly reviewed possible strategies and
transactions to enhance UST's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
UST's businesses and operations, thereby increasing stockholder value. These
strategies included a possible acquisition, joint ventures, internal
restructurings, outsourcing of operational services and divestiture of one of
its businesses. In December 1993, UST's management determined that UST should
examine the possibility of a divestiture of the Processing Business (as
defined below) in its entirety. The principal reasons for UST's determination
to actively pursue this strategic course of action was the conclusion that the
securities processing business would require significant allocations of
capital and financial resources on an ongoing basis to remain competitive,
while UST anticipated needs for additional capital and financial resources to
expand its more profitable growth opportunities in the asset management,
private banking, and corporate trust and agency businesses over the coming
years. In addition, UST's management believed that, in light of the size of
its capital, the inherent operating risks in securities processing businesses
generally could, over time, threaten UST's reputation and franchise in the
Core Businesses. The examination of strategic alternatives culminated in
November 1994 with the execution of the Merger Agreement with Chase. For a
discussion of the events leading up to the execution of the Merger Agreement,
see "The Merger -- Background of the Merger" in the Proxy Statement-Prospectus
to which this Information Statement is attached as Appendix H.
Pursuant to the Merger Agreement and the transactions described therein,
Chase will acquire the Chase Acquired Business, which consists of UST's
securities processing business and related back office operations, including
the assets and certain of the liabilities related thereto. UST's securities
processing business (the "Processing Business") consists of the businesses,
assets and certain liabilities related to (i) the unit investment trust
business of USTNY and its affiliates, which includes, among other things,
acting as trustee for "unit investment trusts" (as such term is defined in the
Investment Company Act of 1940, as amended), maintaining custody of securities
and investments for unit trusts and providing other processing support to unit
trusts, (ii) the mutual funds services business of UST and its subsidiaries,
which includes, among other things, providing domestic and global custody,
transfer agency and other administrative services to registered investment
companies and (iii) the institutional asset services business of USTNY and its
affiliates, which includes, among other things, master trust and custody
services, securities lending services, rabbi trust services and certain money
management services. UST's related back office operations (the "Related Back
Office") consists of the businesses, assets and certain liabilities related to
USTNY's computer services division and securities services and trust
operations division.
The sale of the Chase Acquired Business will be effected through a series
of sequential transactions, including the Distribution and the Merger, all as
set forth in the Merger Agreement. The purpose of this complex structure is to
permit the sale of the Chase Acquired Business on a tax-free basis to UST and
its stockholders in a transaction in which UST stockholders will receive Chase
Common Stock and will also retain their proportionate equity interests in the
Core Businesses in the form of Company Common Stock to be received in the
Distribution. In order to ensure the tax-free nature of the sale, UST (which
will then hold only the Chase Acquired Business) will be merged with and into
Chase. Accordingly, a "reverse spinoff" structure was adopted pursuant to
which the Core Businesses will be transferred to the Company and its
subsidiaries and the Company Common Stock will, prior to the Merger, be
distributed to UST stockholders in the Distribution.
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger and
the Company Common Stock to be received by holders of UST Common Stock in the
Distribution does not constitute a part of the consideration to be received by
UST stockholders in the Merger. Consummation of the Distribution is a
condition to the Merger.
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Terms of the Contribution Agreement
In connection with the Distribution, USTNY and New Trustco will enter
into the Contribution Agreement. The Contribution Agreement provides for,
among other things, a series of asset and stock transfers between USTNY and
New Trustco, and the assignment to and assumption by, New Trustco of
liabilities of USTNY relating to the assets and stock transferred (the
"Contribution Asset Transfers"). The Contribution Asset Transfers are designed
to transfer all the assets and liabilities of USTNY to New Trustco, other than
the businesses, assets and liabilities included in the Chase Acquired
Business.
Contribution Assets and Contribution Liabilities
Pursuant to the terms of the Contribution Agreement, immediately prior to
the Distribution Asset Transfers (as defined under "-- Terms of the
Distribution Agreement -- The Distribution Asset Transfers" below), USTNY will
assign, transfer, convey and contribute to New Trustco, effective as of the
Closing, all the business, properties, assets, goodwill and rights of USTNY,
other than the Chase Assets (as defined below), owned by USTNY on the Closing
Date (the "Contribution Assets"), including: (i) all assets used or held for
use primarily in the Core Businesses; (ii) all agreements entered into by
USTNY with customers or clients of the Core Businesses relating to such
businesses; (iii) all mortgages, loans, overdrafts, lines of credit, rights in
respect of letters of credit and similar assets of the Core Businesses and all
rights in respect of collateral or security (except rights in collateral to
the extent that such rights secure any Chase Assets) for any of the foregoing;
(iv) all accrued fees, accrued interest and accounts receivable, other than
those of the Chase Acquired Business; (v) all real property owned by USTNY and
all rights in certain leases; (vi) all cash on hand, funds available for
investment, investments and securities of USTNY, other than certain
investments or funds reflected on the balance sheet of the Chase Acquired
Business at the Time of Distribution; (vii) USTNY's interest in all lease and
licensing agreements, and related support agreements, with third parties for
the use of systems and applications software (excluding, however, certain data
processing licenses and computer leases); (viii) USTNY's interest in UST's
core trust and custody software system utilized by USTNY in the Processing
Business and its other businesses (the "Asset Management System"); (ix) all
rights relating to the Contribution Liabilities (as defined below); (x) all
rights relating to certain abandoned property; (xi) all policies of insurance
or similar agreements; (xii) all collateral posted to secure clearing and
other contingent obligations ; and (xiv) all fees or accounts receivable of
the Chase Acquired Business which have been paid on or before the close of
business on the day immediately prior to the Closing Date.
The Contribution Agreement also provides that, subject to certain limited
exceptions, the Contribution Assets will not include assets of USTNY that are
primarily used, or that are held for use in, or are reasonably necessary for
the conduct by USTNY of, the Chase Acquired Business on the Closing Date (the
"Chase Assets"), including: (i) all customer agreements relating to the
Processing Business; (ii) all accounts receivable and accrued and unpaid fees
under customer agreements owed to USTNY on the Closing Date and arising out of
the Processing Business; (iii) certain agreements by which USTNY is bound that
relate to the Chase Acquired Business; (iv) USTNY's lease relating to space in
the building located at 770 Broadway, New York, New York (the "Broadway
Lease"); (v) certain USTNY proprietary systems and application software; and
(vi) all rights relating to Chase Liabilities (as defined below).
In addition, pursuant to the terms of the Contribution Agreement, New
Trustco will assume, subject to certain exceptions, effective as of the
Closing, and will pay, perform and discharge when due and indemnify USTNY and
hold USTNY harmless from and against all liabilities (the "Contribution
Liabilities") of USTNY existing on the Closing Date (other than Chase
Liabilities), including: (i) all liabilities of USTNY relating to or arising
out of the Core Businesses; (ii) all liabilities arising out of any event,
occurrence, action or omission taken or occurring prior to the Closing Date by
or with respect to USTNY, its officers, directors, Board of Trustees,
employees, agents or representatives; (iii) all obligations in respect of the
8 1/2% Capital Notes due 2001 of USTNY; (iv) any liability which is
attributable to any of the Acquired Contribution Assets; (v) all liabilities
under each UST benefit plan that is transferred to New Trustco; (vi) all fees
and expenses of USTNY and its subsidiaries incurred on or before the
Contribution Asset Transfers in connection with the Merger; and (vii) all
obligations under agreements relating to the Chase Acquired Business that are
to be performed or discharged prior to the Closing Date.
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The Contribution Agreement also provides that at all times at and after
the Closing, USTNY will, subject to certain exceptions, retain and be solely
responsible for, and USTNY will pay, perform and discharge when due, and
indemnify New Trustco and hold New Trustco harmless from and against the
following liabilities (the "Chase Liabilities"): (i) all deposits arising from
the Processing Business; (ii) all liabilities to trade creditors and accounts
payable of the Chase Acquired Business reflected on the balance sheet of the
Chase Acquired Business at the Time of Distribution; (iii) all liabilities
under agreements relating to the Processing Business, subject to limited
exceptions; (iv) (A) all liabilities for amounts required to be paid as of or
after the Effective Time under the terms of UST's 1986 Stock Option Plan and
employer payroll taxes due with respect to such amounts, subject to certain
limits and (B) all liabilities for amounts payable under a transition bonus
program established by the Company in connection with the Merger maintained by
USTNY; (v) all obligations and duties as lessee under the Broadway Lease
arising after the Closing Date; and (vi) certain obligations relating to
certain abandoned property.
Delayed Assets and Delayed Liabilities
The Contribution Agreement provides that to the extent that any consent
with respect to a contract, agreement, lease or other instrument included in
the Contribution Assets that is legally required to effect the transfer
thereof to New Trustco (a "Required Consent"), and that has not been obtained
on or prior to the Closing Date (a "Delayed Asset"), will not be transferred
as a Contribution Asset, and any related liability (a "Delayed Liability")
will not be assumed by New Trustco as a Contribution Liability, unless and
until such Required Consent has been obtained. Pursuant to the Contribution
Agreement, USTNY will agree that if such a Required Consent to transfer is not
obtained, USTNY will reasonably cooperate with New Trustco to attempt to
provide to New Trustco the benefits under or of any such Delayed Asset;
provided that New Trustco will assume, pay and perform (and indemnify and hold
USTNY harmless from and against) all obligations and liabilities relating to
such Delayed Asset or Delayed Liability and will promptly reimburse USTNY for
all of its actual costs and expenses (including attorneys' fees and employee
salaries and allocable benefits, but not overhead) in connection with any such
arrangement.
USTNY and New Trustco will agree that, on each occasion after the Closing
Date that a Required Consent is obtained with respect to a Delayed Asset, such
Delayed Asset will be transferred and assigned to New Trustco, and all related
Delayed Liabilities will be simultaneously assumed by New Trustco.
Use of Names
The Contribution Agreement contemplates that after the Closing Date,
USTNY will promptly change the name "USTNY" on all documents, stationery and
facilities relating to the Chase Acquired Business to a name that is not in
any way similar to USTNY's name (or any name or initial confusingly similar to
that of any existing affiliates of New Trustco). Under the Contribution
Agreement, USTNY will transfer to New Trustco all right, title and interest in
and to, and all rights to use, USTNY's name (or any name or initial similar
thereto or of any existing affiliates of USTNY).
Chase Acquired Business Balance Sheet
Because all the consideration for the sale of the Chase Acquired Business
is being paid directly to the UST stockholders in the form of Chase Common
Stock, the Contribution Agreement generally contemplates that the balance
sheet assets of the Chase Acquired Business to be retained by UST after the
Distribution will be equal to the balance sheet liabilities of the Chase
Acquired Business. In order to effectuate this, the Contribution Agreement
provides, subject to certain exceptions, that USTNY will retain, and not
contribute to New Trustco, an amount of cash and short-term U.S. Treasury
securities (valued at the amount that could be realized on their disposition)
expected to exceed by $5.5 million the amount by which the balance sheet
liabilities of the Chase Acquired Business exceed the balance sheet assets of
the Chase Acquired Business. (Such a mechanism is necessary because the
deposit and other liabilities of the Processing Business will significantly
exceed the assets -- which are comprised principally of leasehold
improvements, furniture, equipment and accounts receivable -- of the
Processing Business, and since no investment assets or funds of USTNY are
specifically allocated to, or considered to be assets of, the Processing
Business for purposes of the
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Contribution Agreement or Distribution Agreement). The amount of funds and
U.S. Treasury securities to be retained by USTNY is subject to additional
adjustments to compensate for amounts otherwise payable by one party to the
other in connection with the transaction or to compensate for liabilities
assumed by Chase that do not directly relate to the Chase Acquired Business.
Similarly, the amount of funds to be retained by USTNY will be increased to
reflect payment obligations to be retained by USTNY in respect of certain
employee plans, the after-tax cost to Chase of terminating out-of-market
computer equipment leases being acquired in the Merger and certain payments
relating to the leasehold space at 770 Broadway also being acquired by Chase
as a consequence of the Merger.
In order to permit the calculation of the amount of funds and U.S.
Treasury securities to be retained by New Trustco, USTNY will prepare Closing
Date balance sheets for USTNY, MF Service Company and UST-WY. The amounts
reflected therein, to the extent based on estimates or otherwise erroneous,
will be finalized and corrected after the Closing Date, and New Trustco or
USTNY will make any compensating payment to the other party required in
connection therewith.
Conditions of Obligations of New Trustco and USTNY
The Contribution Agreement provides that the respective obligation of
each party to effect the Contribution Asset Transfers is subject to
satisfaction or waiver (which waiver, in the case of USTNY, requires the
consent of Chase) prior to the Closing of the following conditions: (a) all
necessary consents or expirations of waiting periods imposed by any
governmental authority shall have been obtained or shall have occurred; (b)
there shall be no suit, action, or other proceeding pending which has been
initiated by any governmental authority seeking to restrain, prohibit,
invalidate or set aside in whole or in part the consummation of the
transactions contemplated by the Contribution Agreement and no temporary
restraining order, preliminary or permanent injunction or other legal
restraint or prohibition preventing the consummation of the transactions
contemplated by the Contribution Agreement shall be in effect; and (c) all
conditions to the consummation of the transactions contemplated by the Merger
Agreement (other than the Asset Transfers (as defined below) and the
Distribution) shall have been satisfied.
Conditions of Obligation of New Trustco
The obligation of New Trustco to accept the Contribution Assets and
assume the Contribution Liabilities is further subject to the following
conditions, unless waived by New Trustco: (a) the representations and
warranties of USTNY set forth in the Contribution Agreement shall be true and
correct in all material respects as of the date of such agreement and as of
the Closing as though made on and as of the Closing (or on or as of the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); (b) USTNY shall have performed or complied in all
material respects with all obligations, conditions and covenants required to
be performed or complied with by it under the Contribution Agreement at or
prior to the Closing; (c) USTNY shall have delivered to New Trustco an
appropriate bill of sale conveying the Contribution Assets; (d) the Merger
Agreement and each of the Distribution Documents shall have been executed and
shall, subject to consummation of the transactions contemplated by the Merger
Agreement, the Distribution Agreement and the Contribution Agreement, be
effective and in force; and (e) USTNY shall have amended its organization
certificate to change its name.
Conditions of Obligations of USTNY
The obligations of USTNY to assign the Contribution Assets and transfer
the Contribution Liabilities is further subject to the following conditions,
unless waived by USTNY (with the consent of Chase): (a) the representations
and warranties of New Trustco set forth in the Contribution Agreement shall be
true and correct in all material respects as of the date of such agreement and
as of the Closing Date as though made on and as of the Closing Date (or on or
as of the date when made in the case of any representation or warranty which
specifically relates to an earlier date); (b) New Trustco shall have performed
or complied in all material respects with all obligations required to be
performed or complied with by it under the Contribution Agreement at or prior
to the Closing; (c) New Trustco shall have executed and delivered to USTNY an
Assumption Agreement relating to the Contribution Liabilities; and (d) the
Merger Agreement and each of
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the Distribution Documents shall have been executed and shall, subject to
consummation of the transactions contemplated by the Merger Agreement, the
Distribution Agreement and the Contribution Agreement, be effective and in
force.
Terms of the Distribution Agreement
The Distribution Agreement provides for, among other things, (i) the
dividend by USTNY of all the capital stock of New Trustco to UST, and the
subsequent contribution by UST of such capital stock to the Company and (ii)
the Distribution.
In addition, the Distribution Agreement provides for a series of asset
and stock transfers between and among UST, certain of UST's subsidiaries and
the Company, and the assignment to and assumption by the Company of certain
liabilities of UST and certain of its subsidiaries relating to the assets and
stock transferred (the "Distribution Asset Transfers" and, together with the
Contribution Asset Transfers, the "Asset Transfers"). The Distribution Asset
Transfers are designed to transfer the Core Businesses to the Company.
Recapitalization of the Company
The Distribution Agreement provides that immediately prior to the Time of
Distribution, UST will appropriately cause the Company to amend its
Certificate of Incorporation to, among other things, increase the currently
authorized number of shares of common stock of the Company and to exchange the
100 shares of such common stock currently outstanding for a total number of
shares of Company Common Stock equal to the total number of shares of UST
Common Stock outstanding immediately prior to the Distribution Record Date.
Method of Effecting the Distribution
The Distribution Agreement provides that the Distribution will be
effected by the distribution to each holder of record of UST Common Stock, as
of the close of the stock transfer books on the Distribution Record Date, of
certificates representing one share of Company Common Stock multiplied by the
number of shares of UST Common Stock held by such holder.
Distribution Assets and Distribution Liabilities
Pursuant to the terms of the Distribution Agreement, immediately prior to
the Time of Distribution and immediately following the Contribution Asset
Transfers and the dividend by USTNY of all of the stock of New Trustco to UST,
UST will assign, transfer, convey and contribute, or cause the assignment,
transfer, conveyance and contribution of, the following (collectively, the
"Distribution Assets" and, together with the Contribution Assets, the "Company
Assets") to the Company:
(a) all of the issued and outstanding capital stock of the following
subsidiaries: (i) New Trustco; (ii) U.S. Trust Company of Florida Savings
Bank, a Florida banking corporation; (iii) U.S.T.L.P.O. Corp., a Delaware
corporation; (iv) Campbell, Cowperthwait & Company, a Delaware corporation;
(v) U.S. Trust Company of California, N.A., a national banking association;
(vi) U.S. Trust Company of New Jersey, a New Jersey banking corporation; (vii)
U.S. Trust Company of Connecticut, a Connecticut banking corporation; (viii)
UST Financial Services Corp., a New York trust company; (ix) CTMC Holding
Company, an Oregon corporation; (x) U.S. Trust Company Limited, a New York
banking corporation; (xi) Technologies Holding Corporation, a Delaware
corporation; and (xii) UST Risk Management Services Inc., a New York
corporation.
(b)(i) subject to the Retention Amount (as defined under "-- Retention
Amount" below), all cash on hand, investments (subject to certain exceptions)
and securities (subject to certain exceptions) owned by, or held for the
account of, UST; (ii) all patents, trademarks, service marks and the like, and
all rights to the name "U.S. Trust Corporation" or any other name used or
employed by UST or any of its affiliates (other than MF Service Company (as
defined below)); (iii) all equity or debt investments of UST in any
corporation or other business association (other than UST's equity investments
in MF Service Company, a Delaware
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Corporation ("MF Service Company"), USTNY and U.S. Trust Company of Wyoming, a
Wyoming corporation ("UST-WY")); and (iv) all rights relating to the
Distribution Liabilities (as defined below).
(c)(i) all cash on hand, investments and securities owned by, or held for
the account of, MF Service Company; and (ii) all equity or debt investments of
MF Service Company (other than MF Service Company's equity interest in Mutual
Funds Service Company (Canada) Ltd.) in any corporation or other business
association.
(d)(i) all cash on hand, investments and securities owned by, or held for
the account of UST-WY; (ii) all patents, trademarks, service marks and the
like and all rights with respect to the name "U.S. Trust Company of Wyoming"
or any similar name used or employed by UST-WY or any of its affiliates; and
(iii) all equity or debt investments of UST-WY in any corporation or other
business association.
The Distribution Agreement provides that, notwithstanding any other
provision therein to the contrary, the businesses and assets which are a part
of the Core Businesses will not include the business, properties, assets,
goodwill and rights of UST of whatever kind and nature, real or personal,
tangible or intangible that are primarily used or held for use in the Chase
Acquired Business on the Closing Date (other than any names that are
Distribution Assets, and any similar names).
The Distribution Agreement also provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement, the Contribution Agreement or the Merger Agreement were intended to
be assigned and transferred to, or retained by, the other party, such party
will promptly assign and transfer or cause to be assigned and transferred such
assets to the other party. The Distribution Agreement further provides that,
except as otherwise provided therein or in the Merger Agreement, the
Contribution Agreement, the Post Closing Covenants Agreement or the Tax
Allocation Agreement, at or prior to the Time of Distribution, the Company
will assume, or agree to be responsible for, all liabilities (the
"Distribution Liabilities" and, together with the Contribution Liabilities,
the "Company Liabilities") of UST, MF Service Company and UST-WY other than
(i) the certain specified liabilities of MF Service Company (the "MF Service
Company Retained Liabilities") arising before the Time of Distribution; (ii)
the certain specified liabilities of UST-WY (the "UST-WY Retained
Liabilities") arising before the Time of Distribution and (iii) the
liabilities and obligations relating to the Retention Amount.
Retention Amount
Pursuant to the terms of the Distribution Agreement, and notwithstanding
the Distribution Asset Transfers, UST will retain, and not distribute or
contribute to the Company pursuant to the Distribution Asset Transfers, cash
funds equal to the Retention Amount. The Distribution Agreement defines the
"Retention Amount" as the sum of (w) the aggregate amount, determined as of
the close of business on the day immediately prior to the Closing Date, of the
cash payments required to be made with respect to all stock options granted
under the 1989 Stock Compensation Plan of U.S. Trust Corporation and the U.S.
Trust Corporation Stock Option Plan for Non-Employee Directors that have not
expired or that have not been exercised or canceled prior to the Effective
Time, determined in accordance with the relevant provisions of each such plan
on the basis of a "change in control" having occurred thereunder with respect
to such stock options as a result of the Merger; (x) the product of (i) the
aggregate amount, determined as of the close of business on the day
immediately prior to the Closing Date, of the cash payments required to be
made with respect to all outstanding account balances under the Annual
Incentive Plan of U.S. Trust Corporation, determined in accordance with the
relevant provisions of such plan (including any amendment thereof made in
accordance with the terms of the Merger Agreement) on the basis of a "change
in control" having occurred thereunder as a result of the Merger, multiplied
by (ii) 0.68875; plus (y) the aggregate amount, determined as of the close of
business on the day immediately prior to the Closing Date, required to pay any
employer payroll taxes, including for employer's share of FICA and FUTA, due
on amounts payable under the plans referred to in clauses (w) and (x) above;
minus (z) the sum of (i) $5.5 million plus (ii) an amount equal to the amount
of MF Service Company's net worth as reflected on its Closing Date balance
sheet plus (iii) an amount equal to the amount of UST-WY's net worth as
reflected on its Closing Date balance sheet.
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Under the Distribution Agreement, UST will retain and be solely
responsible for, and will agree to pay, perform and discharge when due, and
indemnify the Company and hold the Company harmless from and against, all
liabilities and obligations, subject to certain limitations, for amounts
payable under each of the plans referred to in clauses (w) and (x)(i) of the
foregoing paragraph, and all liabilities and obligations to pay all employer
payroll taxes referred to in clause (y) of the foregoing paragraph.
Conditions to the Distribution
The obligations of UST and the Company to consummate the Distribution are
subject to the fulfillment of each of the following conditions: (i) the
recapitalization of the Company shall have been completed substantially as
described in the Distribution Agreement; (ii) each of the Contribution
Agreement, the Post Closing Covenants Agreement and the Tax Allocation
Agreement shall have been executed and delivered by each of the parties
thereto, and the Contribution Asset Transfers shall have been consummated;
(iv) all of the Distribution Asset Transfers shall have been successfully
consummated; (v) each condition to the Closing of the Merger Agreement, other
than the condition requiring the satisfaction of conditions contained in the
Distribution Agreement, shall have been fulfilled; (vi) the Distribution shall
have been approved by the affirmative vote of the holders of UST Common Stock
entitled to cast at least two-thirds (or 66 2/3%) of the total number of votes
entitled to be cast; (vii) any registration statement filed by the Company
with the Commission in connection with the issuance of the Company Common
Stock in the Distribution shall have become effective, and shall not be the
subject of any stop order or proceeding by the Commission seeking a stop
order; (viii) the shares of the Company Common Stock to be issued in the
Distribution shall have designated as a national market system security on the
interdealer quotation system by the National Association of Securities
Dealers, Inc. (the "NASD"); (ix) all necessary consents or expirations of
waiting periods imposed by any governmental authority shall have been obtained
or shall have occurred; and (x) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect.
Amendment
The Distribution Agreement provides that UST and the Company may modify
or amend the Distribution Agreement by written agreement, subject to the
consent of Chase.
Terms of the Post Closing Covenants Agreement
Indemnification by the Company
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that, from and after the Effective Time, it will indemnify and hold harmless
Chase, UST and USTNY (collectively, the "Chase Parties") and their respective
directors, officers, employees, affiliates, agents and assigns, as applicable,
against any and all losses, as incurred, for or on account of or arising from:
(a) any breach of or any inaccuracy in any representation or warranty of any
of the Company, New Trustco (collectively, the "New UST Parties"), UST, USTNY
and their subsidiaries contained in the Merger Agreement or any of the
Distribution Documents; (b) any breach or nonperformance of any covenant of
(i) the New UST Parties or any of their subsidiaries contained in the Merger
Agreement or the Distribution Documents whether to be performed before or
after the Effective Time or (ii) UST or USTNY or any of their subsidiaries
contained in the Distribution Documents to be performed prior to the Effective
Time; (c) any Company Asset or Company Liability; (d) any Delayed Asset or
Delayed Liability; (e) any regulatory or compliance violation that arises out
of events, actions or omissions to act of UST or USTNY occurring prior to the
Effective Time and adversely affects a customer account or any entity that has
an interest in such customer account; (f) except for the Chase Liabilities and
the MF Service Company Retained Liabilities, and actions relating to the
Processing Business, claims of any shareholders, directors, officers,
employees or agents of UST and its subsidiaries arising from the execution by
UST or USTNY of the Merger Agreement or the Distribution Documents and the
consummation after the Effective Time of transactions in accordance with the
terms of such documents; (g) any untrue statement or alleged untrue statement
of any material fact contained in the Proxy Statement-
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Prospectus or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; but only in each case to the extent
based upon information with respect to the New UST Parties, furnished in
writing by or on behalf of the New UST Parties, or at any time prior to the
Effective Time, UST or USTNY, expressly for use in the Proxy Statement-
Prospectus or any amendment or supplement thereto; and (h) any liability
arising (i) from a claim to enforce, or to recover tort liability arising out
of, any Federal, state or local law, rule or regulation relating to the
protection of the environment with respect to any facility, site, location or
business (whether past or present and whether active or inactive) owned,
operated or leased by UST or USTNY or any of their subsidiaries prior to the
Effective Time and (ii) as a result of conditions existing during or prior to
the period of time such facility, site, location or business was owned,
operated or leased by UST or USTNY or any of their subsidiaries.
Indemnification by New Trustco
Pursuant to the Post Closing Covenants Agreement, New Trustco will agree
that, from and after the Effective Time, it will indemnify and hold harmless
the Chase Parties and their respective directors, officers, employees,
affiliates, agents and assigns, as applicable, against any and all losses, as
incurred, for or on account of or arising from: (a) any breach of or any
inaccuracy in any representation or warranty of New Trustco or USTNY and their
subsidiaries contained in the Merger Agreement or any of the Distribution
Documents; (b) any breach or nonperformance of any covenant of (i) New Trustco
contained in the Merger Agreement or the Distribution Documents whether to be
performed before or after the Effective Time or (ii) USTNY contained in the
Merger Agreement or the Distribution Documents to be performed prior to the
Effective Time; (c) any Contribution Asset or Contribution Liability; (d) any
Delayed Asset or Delayed Liability; (e) any regulatory or compliance violation
that arises out of events, actions or omissions to act of USTNY occurring
prior to the Effective Time and adversely affects a customer account or any
entity with an interest in such customer account; and (f) any liability
arising (i) from a claim to enforce, or to recover tort liability arising out
of, any Federal, state or local law, rule or regulation relating to the
protection of the environment with respect to any facility, site, location or
business (whether past or present and whether active or inactive) owned,
operated or leased by USTNY prior to the Effective Time and (ii) as a result
of conditions existing during or prior to the period of time such facility,
site, location or business was owned, operated or leased by USTNY.
Indemnification by Chase
Pursuant to the Post Closing Covenants Agreement, Chase will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for
or on account of or arising from: (a) any breach of or inaccuracy in any
representation or warranty of Chase contained in the Merger Agreement or any
of the Distribution Documents; (b) any breach or nonperformance of any
covenant of (i) Chase contained in the Merger Agreement or the Distribution
Documents whether to be performed before or after the Effective Time or (ii)
UST or USTNY or any of their subsidiaries contained in the Distribution
Documents to be performed after the Effective Time; (c) except for losses as
to which any of the Chase Parties are entitled to indemnification, any Chase
Asset, any Chase Liability or any MF Service Company Retained Liability; and
(d) any untrue statement or alleged untrue statement of any material fact
contained in the Proxy Statement-Prospectus or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; but
only in each case to the extent based upon information with respect to the
Chase Parties furnished in writing by or on behalf of Chase or, at any time
after the Effective Time, UST or USTNY, expressly for use in the Proxy
Statement-Prospectus or any amendment or supplement thereto.
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Indemnification by USTNY
Pursuant to the Post Closing Covenants Agreement, USTNY will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for
or on account of or arising from: (a) any breach or nonperformance of any
covenant of USTNY contained in the Merger Agreement or the Distribution
Documents to be performed after the Effective Time; and (b) except for losses
as to which any of the Chase Parties are entitled to indemnification, any
Chase Asset or any Chase Liability.
Termination and Limitation on Indemnification
The Post Closing Covenants Agreement provides that each party's
obligation to indemnify and hold harmless any other party will terminate,
subject to certain limited exceptions, (i) in the case of indemnification with
respect to the breach of any representation and warranty by any party, two
years from the Closing Date and (ii) in the case of indemnification with
respect to regulatory compliance, one year from the Closing Date. The other
indemnification provisions do not terminate.
The Post Closing Covenants Agreement also provides that, notwithstanding
any of its other provisions, neither the New UST Parties nor Chase or USTNY
will be obligated to indemnify any party unless the aggregate amount of all
losses relating to such liability exceeds on a cumulative basis an amount
equal to $500,000 (the "Deductible Amount"), and then only to the extent of
any such excess; provided, that any loss arising from a single indemnification
claim in an amount greater than $50,000 will not be subject to such limitation
and will be excluded from the determination of the Deductible Amount. In
addition, amounts to be indemnified pursuant to certain provisions of the
Contribution Agreement and certain provisions of the Distribution Agreement
are not subject to such limitation.
Minimum Net Worth
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that, until the later of (a) three years from the date thereof or (b) the date
when the applicable statutes of limitations with respect to all Federal income
tax liabilities of UST for periods ending prior to or on the Closing Date have
run, it will (i) as of any date of determination, maintain consolidated
shareholders' equity of not less than the lesser of (x) $150 million and (y)
the greater of (1) 95% of the consolidated shareholders' equity of the Company
at January 1, 1996, and (2) the sum of (A) $135 million plus (B) on and after
January 1, 1997, the product of (I) $7.5 million multiplied by (II) the number
of the most recent preceding anniversary of December 31, 1995, and (ii) be a
"well capitalized" bank holding company within the meaning of the regulations
of the Board of Governors (as in effect on the date of the Post Closing
Covenants Agreement); except that, so long as the Company's Tier 1 capital
leverage ratio is 4.5% or above, the Company will not be deemed to be less
than "well capitalized" solely because its Tier 1 capital leverage ratio is
less than 5%; provided, however, that on or before September 30, 1995, the
denominator used in determining the Company's Tier 1 capital leverage ratio
shall be the book value of the average total consolidated assets (net of the
allowance for loan losses) of the Company following the Distribution.
The Company's Noncompetition Agreement
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that:
(a) Until the fourth anniversary of the Effective Time, neither the
Company nor any subsidiary or affiliate of the Company will (i) in any way,
directly or indirectly, engage in the Restricted Processing Business (as
defined below) in the United States or Canada, or own, manage, operate,
control or have an interest greater than 5% of the voting stock or 25% of the
total equity in any enterprise which engages, directly or indirectly, in the
Restricted Processing Business in the United States or Canada; provided that
the Company or any subsidiary or affiliate of the Company may directly or
indirectly acquire a corporation or other entity or affiliated group of
corporations or other entities that is engaged in the Restricted Processing
Business (an "Acquired Person") so long as during the twelve-month period
ending on the last day of the month immediately preceding the month of such
acquisition, revenues earned from the Restricted Processing
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Business by such Acquired Person constituted no more than 15% of the aggregate
revenues of such Acquired Person, and each Acquired Person will be subject to
the noncompetition provisions of the Post Closing Covenants Agreement only
with respect to customers of such Acquired Person who were not customers on
the date immediately preceding the date such Acquired Person became an
affiliate of the Company; (ii) provide any customer or corporation, trust,
foundation, endowment or similar entity (other than those established and
operated exclusively to manage the assets or affairs of a family (a "Family
Office")) having investible assets of $50 million or more, with any of the
following items in connection with any assets held in custody or safekeeping
by Chase or any affiliate, except as provided in the Services Agreement: (A)
securities lending and investment of related collateral, (B) securities and
commodities clearing services or (C) foreign exchange services; or (iii)
provide any customer with any of the following items in connection with any
assets with respect to which Chase or any affiliate provides Processing
Services: (A) cash balance sweep services, (B) except with respect to assets
for which the Company or any subsidiary exercises investment management for
certain customers, certain cash management services or (C) extensions of
credit to investment companies and other commingled investment funds.
(b) Until the third anniversary of the Effective Time, the Company will
not solicit for employment certain specified employees to be retained by the
Chase Parties. In addition, from and after the Effective Time, neither the
Company nor any of its subsidiaries will disclose or make use of certain
confidential information related to the Processing Business and the Related
Back Office.
(c) In the event that there is a direct or indirect Change of Control (as
defined below), the Company and New Trustco will cease to be bound by the
noncompetition provisions of the Post Closing Covenants Agreement, and upon
six months notice by Chase, Chase may treat such Change of Control as a
termination of the Services Agreement by New Trustco and cease providing
Restricted Processing Services under the Services Agreement on or after six
months after the Change of Control.
The following definitions relate to paragraphs (a) through (c) described
above:
"Bundled Services" means the provision of certain administration
services, custody services or trust services as included services, and
without separate charge, together with the exercise of substantial
management discretion over 50% or more of the investible assets in the
account for which such included services are provided.
"Change of Control" means any direct or indirect acquisition of the
Company or New Trustco by any other institution, including without
limitation, a merger of the Company or New Trustco with an unaffiliated
institution (or any affiliate of such institution) having total assets of
$2 billion or more or shareholders' equity of $200 million or more.
"Restricted Processing Business" means the Processing Business;
provided, however, that the term "Restricted Processing Business" shall
not include any services that would, but for this proviso, constitute
services of the "Restricted Processing Business", to the extent such
services are provided in connection with any of the following: (i)
certain mutually agreed upon existing relationships; (ii) assets with
respect to which the Company or any subsidiary or affiliate of the
Company exercises investment management; (iii) individuals, estates,
family trusts or Family Offices; (iv) any corporation, limited liability
company, trust, partnership, foundation or endowment or other entity
having, at the time of the acceptance of the relationship, investible
assets of less than $50 million or, at any time the services are provided
other than as Bundled Services, investible assets of less than $100
million; (v) any collective investment trust maintained exclusively by
New Trustco or another bank or trust company affiliate; (vi) the
corporate trust and agency business of the Company, New Trustco or any of
their affiliates, (vii) subject to clause (iv) above, the asset and
investment management of the Company, New Trustco or any of their
affiliates; (viii) subject to clause (iv) above, the private banking
business of the Company, New Trustco and any of their affiliates, (ix)
any service provided to the Company or a subsidiary or affiliate of the
Company for its own account or (x) any relationship for which Chase
serves as subcustodian to the Company or any subsidiary or affiliate of
the Company (other than pursuant to the Services Agreement).
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Terms of the Tax Allocation Agreement
Prior to the Time of Distribution, Chase, UST and the Company will enter
into a Tax Allocation Agreement which sets forth each party's rights and
obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the Distribution and
related matters such as the filing of tax returns and the conduct of the
claims made by the Service and other taxing authorities.
In general, under the Tax Allocation Agreement, the Company will be
responsible for taxes imposed on UST or any of its subsidiaries with respect
to a tax period ending on or before the Effective Time.
Certain Federal Income Tax Consequences
UST has requested the Private Letter Ruling from the Service
substantially to the effect that, among other things, the Distribution will
qualify as tax-free to UST and its stockholders under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code") and that the Asset
Transfers will not be taxable transactions. Receipt of the Private Letter
Ruling reasonably satisfactory to each of UST and Chase is a condition to the
respective obligations of UST and Chase to consummate the Merger and it is a
condition to each of the Company's and UST's obligation to consummate the
Distribution that all conditions to the Merger be satisfied. See "The
Distribution -- Terms of the Distribution Agreement -- Conditions to the
Distribution". Assuming that the Private Letter Ruling is received, the
following is a summary of the material Federal income tax consequences of the
Distribution:
1. A UST stockholder will not recognize any income, gain or loss as
a result of the Distribution.
2. A UST stockholder will apportion its tax basis for its UST Common
Stock between such UST Common Stock and Company Common Stock received in
the Distribution in proportion to the relative fair market values of such
UST Common Stock and Company Common Stock on the Distribution Date.
3. A UST stockholder's holding period for the Company Common Stock
received in the Distribution will include the period during which such
stockholder held the UST Common Stock with respect to which the
Distribution was made, provided that such UST Common Stock is held as a
capital asset by such stockholder as of the Time of Distribution.
4. No gain or loss will be recognized to UST as a result of the
Distribution.
Current Treasury regulations require each UST stockholder who receives
Company Common Stock pursuant to the Distribution to attach to its federal
income tax return for the year in which the Distribution occurs a detailed
statement setting forth such data as may be appropriate in order to show the
applicability of Section 355 of the Code to the Distribution. UST (or the
Company on its behalf) will convey the appropriate information to each UST
stockholder of record as of the Distribution Record Date.
RELATIONSHIP WITH CHASE
Following the Merger, the Company will continue to have certain
relationships with Chase and its subsidiaries.
Post Closing Covenants Agreement; Tax Allocation Agreement
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and the Company and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, the
Company has agreed, pursuant to the Post Closing Covenants Agreement, for a
period of four years after the Effective Time, not to engage in, or compete
with Chase with respect to, the Chase Acquired Business, subject to certain
limited exceptions. See "The Distribution -- Terms of the Post Closing
Covenants Agreement -- The Company's Noncompetition Agreement".
H-28
<PAGE>
Services Agreement
In the Merger, Chase will acquire the Related Back Office, which includes
software and hardware necessary to conduct the Chase Acquired Business.
Certain core software, principally software to operate the Asset Management
System, will be transferred to New Trustco and licensed by New Trustco to
USTNY on a perpetual nonexclusive basis. Although the Related Back Office
primarily serves the Processing Business, it also provides necessary services
to the Core Businesses, all of which will be transferred to New Trustco and
its affiliates pursuant to the Contribution Agreement. Accordingly, prior to
the Time of Distribution, New Trustco and USTNY will enter into the Services
Agreement.
Pursuant to the Services Agreement, USTNY will agree to furnish necessary
securities processing, custodial, data processing and other services (the
"Back Office Services") to New Trustco and its affiliates. The Services
Agreement will be in a form, and on terms, agreed to by UST and Chase on or
before February 28, 1995, substantially in accordance with the terms of the
Services Agreement Term Sheet entered into on November 18, 1994, between UST
and Chase. Following the Merger, USTNY will be merged (the "Bank Merger") with
and into The Chase Manhattan Bank (National Association) ("CMB"). In the Bank
Merger, CMB will acquire the rights, and assume the obligations, of USTNY
under the Services Agreement.
The parties intend that the Back Office Services furnished to New Trustco
and its affiliates under the Services Agreement will include all of the
functions that are currently performed by the Related Back Office, as well as
certain bank processing services, such as loan processing services, deposit
and check processing services (the "Bank Processing Services"). The Back
Office Services may be modified to reflect reasonable evolution or change in
the business of New Trustco and its affiliates. The Back Office Services will
not include any broker dealer services, securities industry banking services
or back-up servicing.
Under the Services Agreement, CMB will provide the Back Office Services
to New Trustco for an initial term of five years beginning on the Closing
Date. With CMB's consent (which CMB may withhold in its sole discretion), New
Trustco may extend the initial term of the Services Agreement for an
additional five years. If CMB withholds such consent, New Trustco may in any
case extend the term of the Services Agreement for an additional two years.
In consideration of the Back Office Services provided to it under the
Services Agreement, during the initial term, New Trustco will pay to CMB an
annual base fee of $10 million, which is significantly less than New Trustco's
estimate of the annual cost of providing such services itself. The annual base
fee for any additional term after the initial term will be an amount equal to
110% of the total fees paid by New Trustco in the fifth year of the initial
term.
The annual base fee will cover all Back Office Services required by
normal growth of New Trustco and its affiliates, and will include, as well,
certain base levels of systems development and maintenance resources. CMB will
charge New Trustco at rates discounted from CMB's prevailing rates for similar
institutional business for any incremental Back Office Services attributable
to additional growth, evolution in the business of New Trustco and its
affiliates, and certain other new business.
CMB may assign the Bank Processing Services or other data center services
provided under the Services Agreement to a third party, without New Trustco's
consent, provided the third party will also be providing such services to CMB.
CMB may not assign the remaining services to a third party, although it may
sell or transfer responsibility for the Back Office Services together with the
sale or transfer of the Chase business unit providing such Back Office
Services. New Trustco will not have the right to assign the Services Agreement
without CMB's consent.
Either party may terminate the Services Agreement upon a material breach
by the other which has not been cured within 30 days after the expiration of a
15-day informal dispute resolution process initiated by the nonbreaching
party. Either party may terminate in the event that the other party becomes
insolvent or bankrupt or undergoes a change of control.
New Trustco may terminate the Services Agreement for any reason effective
after the end of the first year by giving six months' advance notice. In the
event of such a termination, New Trustco will pay CMB a
H-29
<PAGE>
termination fee of $2.5 million dollars, which fee will be reduced
incrementally over the term of the Services Agreement.
In the event of any termination or expiration of the Services Agreement
(including termination due to any material breach of New Trustco), the
Services Agreement will obligate CMB to provide for up to one year (six months
in the case of a change in control) after the termination or expiration, in
consideration of fees in amounts to be negotiated, reasonably requested
termination assistance to facilitate a smooth transition of the responsibility
for the performance of the Back Office Services to New Trustco or its
designee.
LISTING AND TRADING OF COMPANY COMMON STOCK
There is no existing trading market for the Company Common Stock and
there can be no assurance as to the establishment or continuity of any such
market. The Company expects to apply for listing of the Company Common Stock
on the National Market System. It is a condition to each of the Company's and
UST's obligation to consummate the Distribution that the Company Common Stock
shall have been designated as a security on the National Market System by the
NASD, or listed on the New York or American Stock Exchange subject to official
notice of issuance. See "The Distribution -- Terms of the Distribution
Agreement -- Conditions to the Distribution". However, there can be no
assurance as to the price at which the Company Common Stock will trade or that
such price will not be significantly below the book value per share of the
Company Common Stock.
The Company Common Stock received by UST stockholders pursuant to the
Distribution will be freely transferable under the Securities Act, except for
shares of such Company Common Stock received by any person who may be deemed
an "affiliate" of the Company within the meaning of Rule 145 under the
Securities Act. Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company, and may
include the directors and principal executive officers of the Company as well
as any principal stockholder of the Company. Persons who are affiliates of the
Company will be permitted to sell their Company Common Stock received pursuant
to the Distribution only pursuant to an effective registration statement under
the Securities Act or pursuant to an exemption from registration, such as the
exemptions afforded by Section 4(2) of the Securities Act and Rule 144
thereunder.
H-30
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1994, the combined
historical capitalization of the Company and its combined capital, as adjusted
to reflect the disposition of the Chase Acquired Business pursuant to the
Distribution and the Merger (the "Disposition") and the other related
restructuring transactions. For financial reporting purposes, the Company is a
"successor registrant" to UST and, as a result, the historical financial
information of the Company set forth below and included elsewhere in this
Information Statement is the historical financial information of UST. This
information should be read in conjunction with the Selected Financial Data and
Pro Forma Condensed Financial Statements included elsewhere in this
Information Statement.
<TABLE>
September 30, 1994
-------------------------------------------------------
Disposition Other Company
Historical Adjustments Adjustments Pro Forma
---------- ----------- ----------- ----------
(Dollars In Thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Deposits..................................... $2,383,209 $ (681,250) $ 0 $1,701,959
========= ========= ========= =========
Short-Term Borrowings........................ $1,187,958 $ (824,966) $ 66,852 $ 429,844
========= ========= ========= =========
Long-Term Debt............................... $ 62,574 -- $ (42,403 ) $ 20,171
========= ========= ========= =========
Stockholders' Equity
Common Stock -- $1.00 Par Value.............. $ 11,512 -- $ (1,890 ) $ 9,622
Capital Surplus.............................. 70,190 -- (70,190 ) 0
Retained Earnings............................ 264,806 -- (93,161 ) 171,645
Treasury Stock at Cost....................... (85,895) -- 85,895 0
Loan to ESOP................................. (16,171) -- -- (16,171)
Unrealized Gain (Loss), Net of Taxes, on
Securities Available for Sale.............. (4,805) -- 4,805 0
---------- ----------- ----------- ----------
Total Stockholders' Equity................... $ 239,637 $ -- $ (74,541 ) $ 165,096
========= ========= ========= =========
</TABLE>
- ---------------
See "Notes to Pro Forma Condensed Financial Statements" on pages 37 through
40.
H-31
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statement of condition as of
September 30, 1994, unaudited pro forma condensed statements of income for the
year ended December 31, 1993 and the nine-month period ended September 30,
1994, and unaudited pro forma condensed statement of average balances for the
nine-month period ended September 30, 1994 (collectively, the "Pro Forma
Statements"), were prepared to present the estimated effects of the
disposition of the Chase Acquired Business, related restructuring transactions
and the effect of the Services Agreement as if such transactions had occurred
for statement of condition purposes as of September 30, 1994 and for statement
of income purposes as of January 1, 1993.
The "Disposition Adjustments" column in each of the Pro Forma Statements
includes the following:
- the reduction in assets, liabilities and the elimination from
operations of the revenue and expenses related to the disposition
of the Chase Acquired Business, and
- the reduction in Securities and Short-Term Investments and
Short-Term Borrowings arising from the Company's rebalancing of
its asset and liability structure.
The "Other Adjustments" column in each of the Pro Forma Statements
includes the following:
- the balance sheet impact of the nonrecurring adjustments as set
forth in footnote (1) of the Notes to Pro Forma Condensed
Financial Statements, and
- the ongoing impact on the Company's results of operations arising
from the nonrecurring adjustments and the Services Agreement.
All of the pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are appropriate and include
only "exit costs" as defined in Emerging Issues Task Force Issue 94-3 ("EITF
94-3") that are directly related to the transactions. The information is not
intended to be indicative of the Company's actual results had the transactions
occurred as of the dates indicated above nor do they purport to indicate
results which may be attained in the future.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical financial statements and other financial
information relating to UST. For financial reporting purposes, the Company
will be a "successor registrant" to UST and, as a result, the historical
financial information set forth in the Pro Forma Statements is the historical
financial information of UST.
The Distribution will be accounted for by the Company as if UST had
continued in existence, with the carrying amounts of the assets and
liabilities being distributed being accounted for in accordance with generally
accepted accounting principles at their historical values.
H-32
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF CONDITION
September 30, 1994
(Dollars In Thousands)
(Unaudited)
Company
Before
Disposition Other Other Company
Historical Adjustments(a) Adjustments Adjustments Pro Forma(l)
---------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Cash
Equivalents............. $ 439,819 $ (282,852) $ 156,967 $ (42,545) b) $ 114,422
Securities................ 1,731,890 (997,945) 733,945 -- 733,945
Net Loans, After Allowance
for Credit Losses....... 1,555,191 (164,448) 1,390,743 -- 1,390,743
Other Assets.............. 291,631 (74,927) 216,704 53,906 (c 270,610
---------- -------------- ----------- ----------- ------------
Total Assets.............. $4,018,531 $ (1,520,172) $ 2,498,359 $ 11,361 $2,509,720
========= =========== ========= ========= ==========
Liabilities
Deposits.................. $2,383,209 $ (681,250) $ 1,701,959 $ -- $1,701,959
Short-Term Borrowings..... 1,187,958 (824,966) 362,992 66,852 (d 429,844
Accounts Payable and
Accrued Liabilities..... 145,153 (13,956) 131,197 61,453 (e 192,650
Long-Term Debt............ 62,574 -- 62,574 (42,403) f) 20,171
---------- -------------- ----------- ----------- ------------
Total Liabilities......... 3,778,894 (1,520,172) 2,258,722 85,902 2,344,624
---------- -------------- ----------- ----------- ------------
Stockholders' Equity
Common Stock -- $1.00 Par
Value................... 11,512 -- 11,512 (1,890) g) 9,622
Capital Surplus........... 70,190 -- 70,190 (70,190) h) 0
Retained Earnings......... 264,806 -- 264,806 (93,161) i) 171,645
Treasury Stock at Cost.... (85,895) -- (85,895) 85,895 (j 0
Loan to ESOP.............. (16,171) -- (16,171) -- (16,171)
Unrealized Gain (Loss),
Net of Taxes, on
Securities Available for
Sale.................... (4,805) -- (4,805) 4,805 (k 0
---------- -------------- ----------- ----------- ------------
Total Stockholders'
Equity.................. 239,637 -- 239,637 (74,541) 165,096
---------- -------------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity.... $4,018,531 $ (1,520,172) $ 2,498,359 $ 11,361 $2,509,720
========= =========== ========= ========= ==========
</TABLE>
<TABLE>
Capital Ratios
<S> <C>
As a Percentage of Risk-Adjusted
Period End Total Assets:
Tier 1 Capital....................................................................... 11.56%
Total Capital........................................................................ 12.64%
Tier 1 Leverage........................................................................... 6.36%
</TABLE>
H-33
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1993
(Dollars In Thousands, Except Share Amounts)
(Unaudited)
Reversal
of Back Company
Office & Before
Disposition Corporate Other Other Company
Historical Adjustments(m) Staff(n) Adjustments Adjustments Pro Forma(1)
---------- -------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 116,242 $ (53,399) $ -- $ 62,843 $ -- $ 62,843
Provision for Credit
Losses.................. 4,000 -- -- 4,000 -- 4,000
---------- -------------- --------- ----------- ----------- ------------
Net Interest Income After
Provision for Credit
Losses.................. 112,242 (53,399) -- 58,843 -- 58,843
Fees...................... 264,075 (92,938) -- 171,137 -- 171,137
Other Income.............. 11,888 (5,053) -- 6,835 (2,800)(o) 4,035
---------- -------------- --------- ----------- ----------- ------------
Total Revenue............. 388,205 (151,390) -- 236,815 (2,800) 234,015
---------- -------------- --------- ----------- ----------- ------------
Operating Expenses
Salaries and Benefits..... 189,153 (61,855) 19,125 146,423 (36,604)(p) 109,819
Net Occupancy............. 40,035 (9,360) 4,143 34,818 (6,066)(p) 28,752
Other..................... 86,332 (38,915) 23,003 70,420 (11,610)(p) 58,810
---------- -------------- --------- ----------- ----------- ------------
Total Operating
Expenses................ 315,520 (110,130) 46,271 251,661 (54,280) 197,381
---------- -------------- --------- ----------- ----------- ------------
Income Before Income Tax
Expense................. 72,685 (41,260) (46,271) (14,846) 51,480 36,634
Income Tax Expense(q)..... 30,418 (18,567) (20,822) (8,971) 23,166 14,195
---------- -------------- --------- ----------- ----------- ------------
Net Income................ $ 42,267 $ (22,693) $ (25,449) $ (5,875) $ 28,314 $ 22,439
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)
Primary................. $ 4.26 $ 2.22
========= ==========
Average Shares
Outstanding:
Primary................. 9,968,033 10,253,000
========= ==========
</TABLE>
H-34
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
Nine Months Ended September 30, 1994
(Dollars In Thousands, Except Share Amounts)
(Unaudited)
Reversal
of Back Company
Office & Before Company
Disposition Corporate Other Other Pro
Historical Adjustments(m) Staff(n) Adjustments Adjustments Forma(1)
---------- -------------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 82,391 $ (32,579) $ -- $ 49,812 $ -- $ 49,812
Provision for Credit
Losses.................. 1,500 -- -- 1,500 -- 1,500
---------- -------------- --------- ----------- ----------- ----------
Net Interest Income After
Provision for Credit
Losses.................. 80,891 (32,579) -- 48,312 -- 48,312
Fees...................... 219,965 (76,931) -- 143,034 -- 143,034
Other Income.............. 9,720 (4,406) -- 5,314 (1,394)(o) 3,920
---------- -------------- --------- ----------- ----------- ----------
Total Revenue............. 310,576 (113,916) -- 196,660 (1,394) 195,266
---------- -------------- --------- ----------- ----------- ----------
Operating Expenses
Salaries and Benefits..... 153,080 (50,439) 14,646 117,287 (27,568)(p) 89,719
Net Occupancy............. 29,445 (7,519) 3,071 24,997 (3,601)(p) 21,396
Other..................... 65,097 (27,861) 16,072 53,308 (5,512)(p) 47,796
---------- -------------- --------- ----------- ----------- ----------
Total Operating
Expenses................ 247,622 (85,819) 33,789 195,592 (36,681) 158,911
---------- -------------- --------- ----------- ----------- ----------
Income Before Income Tax
Expense................. 62,954 (28,097) (33,789) 1,068 35,287 36,355
Income Tax Expense(q)..... 26,441 (12,644) (15,205) (1,408) 15,879 14,471
---------- -------------- --------- ----------- ----------- ----------
Net Income................ $ 36,513 $ (15,453) $ (18,584) $ 2,476 $ 19,408 $ 21,884
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)
Primary................. $ 3.69 $ 2.15
========= ==========
Average Shares
Outstanding:
Primary................. 9,964,307 10,284,000
========= ==========
</TABLE>
H-35
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF AVERAGE BALANCES
For the Nine-Month Period Ended September 30, 1994
(In Thousands)
(Unaudited)
Disposition Adjustments
---------------------------
Chase Asset-
Acquired Liability Other Company
Historical Business Rebalancing Adjustments(t) Pro Forma
---------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Cash
Equivalents.............. $ 344,565 $ (152,994) $ -- $(42,545) $ 149,026
Securities and Short-Term
Investments.............. 1,978,198 (826,813) (425,000) -- 726,385
Net Loans, After Allowance
for Credit Losses........ 1,260,793 1,260,793
Other Assets............... 452,058 (172,658)(s) -- 53,906 333,306
---------- ----------- ----------- -------------- ----------
Total Assets............... $4,035,614 $(1,152,465) $ (425,000) $ 11,361 $2,469,510
========= ========== ========= =========== =========
Liabilities and
Stockholders' Equity
Deposits................... $2,985,188 $(1,117,465) $ -- $-- $1,867,723
Short-Term Borrowings...... 591,500 -- (425,000) 66,852 233,352
Accounts Payable and
Accrued Liabilities...... 168,846 (35,000) -- 61,453 195,299
Long-Term Debt............. 62,861 -- -- (42,403) 20,458
Stockholders' Equity....... 227,219 -- -- (74,541) 152,678
---------- ----------- ----------- -------------- ----------
Total Liabilities and
Stockholders' Equity..... $4,035,614 $(1,152,465) $ (425,000) $ 11,361 $2,469,510
========= ========== ========= =========== =========
</TABLE>
H-36
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Disposition Adjustments (Pro Forma Condensed Statement of
Condition) -- The Disposition Adjustments presented in the Pro Forma Condensed
Statement of Condition reflect both the disposition of the Chase Acquired
Business and the rebalancing of the Company's overall asset and liability
structure as a result of the Merger and related restructuring. See "The
Merger -- Terms of the Contribution Agreement" and "-- Terms of the
Distribution Agreement". The Pro Forma Condensed Statement of Average Balances
presents the Company's daily average balance sheet for the nine-month period
ended September 30, 1994 adjusted for the Merger, including the rebalancing of
the Company's asset and liability structure and the Other Adjustments.
During the nine-month period ended September 30, 1994, the Chase Acquired
Business generated average non-interest bearing deposits of approximately
$1,117 million. Investable Deposits, defined as total average non-interest
bearing deposits less average cash items in the process of collection and
average overdrafts, were approximately $827 million during the nine-month
period ended September 30, 1994. The predictability of the Investable Deposits
provided UST with a long- and medium-term funding source. UST employed a
substantial portion of the Investable Deposits to finance its long-term
financial assets, including approximately $425 million of investment
securities, principally U.S. Government Agency Securities ("Agency
Securities"), classified as held to maturity. Following the execution of the
Merger Agreement, the Investable Deposits ceased to be a long-term source of
financing available to UST since they would be included in the Chase Acquired
Business. Accordingly, in anticipation of the closing of the Merger and the
effective transfer of the Chase Acquired Business to Chase, UST sold
approximately $800 million of long- and medium-term U.S. Government Treasury
Securities ("Treasury Securities") and Agency Securities. The proceeds of such
sale will be included in the Chase Acquired Business. (See note (m)).
(b) Cash and Cash Equivalents -- The $42.5 million adjustment is
comprised of the estimated payments of investment banking, legal, accounting,
consulting and printing professional fees ($12,000,000 -- determined based
upon actual invoices and estimates supplied by the various vendors), the
estimated amount of payments necessary to cash-out holders of outstanding
stock options ($39,045,000), and the estimated amount of cash to be received
from the exercise of certain incentive stock options ($8,500,000 -- assumes
the exercise of approximately 236,000 incentive stock options at an average
exercise price of $36.00 per option).
(c) Other Assets -- The $53.9 million increase in Other Assets reflects
(i) certain tax benefits resulting from the Disposition Adjustments and the
Other Adjustments ($66,353,000, reduced by $4,125,000 related to the reversal
of deferred tax benefits previously recorded attributable to the fair value
adjustment for securities available for sale) and (ii) the write-off of the
net book value of premises and equipment ($3,798,000) and computer software
($4,524,000) related to the termination of various leases.
(d) Short-Term Borrowings -- The $66.9 million increase in short-term
borrowings reflects the borrowings required to replace accrued interest and
long-term debt (see notes (e) and (f)), and to replace the shortfall resulting
from the loss incurred on the sale of securities held to maturity.
(e) Accounts Payable and Accrued Liabilities -- The $61.5 million
increase in accounts payable and accrued liabilities includes estimated
severance costs ($21,100,000), the estimated present value (discounted at 8%)
of the cost of terminating leases at discontinued locations ($8,202,000), the
estimated cost of terminating computer hardware leases, software licenses and
contracts ($28,462,000), the estimated cost of terminating certain incentive
compensation plans ($5,100,000) and an amount to record the reversal in
accrued interest payable related to the redemption and satisfaction and
discharge of certain issues of long-term debt ($1,411,000). The estimated
severance costs consist of $12,700,000 of cash severance payments and the
impact of curtailment gains, enhanced pension credits and cost of living
adjustments with respect to the Company's defined benefit pension and
post-retirement benefit plans for specifically identified employees and
$8,400,000 of payments of transition bonuses to certain UST employees
associated with the Chase Acquired Business.
(f) Long-Term Debt -- The $42.4 million reduction in long-term debt
reflects the redemption of the USTNY 8 1/2% Capital Notes Due 2001 and the
satisfaction and discharge of the UST 8% Notes Due 1996.
H-37
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (continued)
The cost of redeeming and defeasing this long-term debt is insignificant to
the Company's pro forma results of operations.
(g) Common Stock -- The $1,890,000 decrease in Company Common Stock
reflects the retirement of treasury stock ($2,126,000) offset by the aggregate
par value amount of the shares to be issued pursuant to the exercise of an
estimated 236,000 incentive stock options at an estimated average exercise
price of $36.00 per share ($236,000).
(h) Capital Surplus -- The $70.2 million adjustment reflects the
retirement of treasury stock ($78,454,000) offset, in part, by the amount of
cash proceeds in excess of the par value received in connection with the
expected exercise of 236,000 incentive stock options ($8,264,000).
(i) Retained Earnings -- The $93.2 million adjustment reflects the
after-tax impact of the nonrecurring adjustments presented in note (l) below
($87,846,000) and the amount by which the book value of treasury stock retired
exceeds capital surplus ($5,315,000).
(j) Treasury Stock at Cost -- The adjustment of $85.9 million reflects
the retirement of treasury stock.
(k) Unrealized Gain (Loss), Net of Taxes, on Securities Available for
Sale -- The adjustment of $4.8 million ($8.9 million before taxes) reflects
the reversal of unrealized losses on securities available for sale that were
realized upon the sale of such securities.
(l) The Pro Forma Statements of Income exclude the following material
nonrecurring adjustments directly related to the transaction which are
expected to be incurred prior to or as a result of the consummation of the
Merger. However, the Pro Forma Statements of Income do include the effect of
such adjustments on the operations of the Company. The Merger is expected to
occur within the next twelve months.
<TABLE>
(Millions)
----------
<S> <C>
Loss on sale of securities held to maturity (see note (d))................ $ 23.0
Loss on sale of securities available for sale (see note (k)).............. 8.9
Severance, post-retirement benefits and related costs (see note (e))...... 21.1
Professional fees (see note (b)).......................................... 12.0
Cost of terminating leases for premises (see notes (c) and (e))........... 12.0
Cost of terminating computer hardware leases, computer software licenses,
contracts and capitalized software (see notes (c) and (e)).............. 33.0
Cost of incentive compensation plans that are being terminated (see note
(e)).................................................................... 5.1
Payout for stock options (see note (b))................................... 39.1
----------
154.2
Applicable tax benefit.................................................... 66.4
----------
Total..................................................................... $ 87.8
========
</TABLE>
In conjunction with the announcement of the Distribution and the Merger,
the Company disclosed that it may incur up to $110 million of restructuring
charges on an after-tax basis in connection with the Distribution and the
Merger. The difference between the $110 million and the charges described
above represents charges that do not presently meet the definition of "exit
costs" as defined by EITF 94-3 and the loss on the sale of securities as
described below.
The pro forma adjustments for the loss on the sale of securities ($31.9
million loss before taxes, $16.8 million after taxes) are based upon the
market values of the securities on September 30, 1994. The $110 million of
restructuring charges include an estimated loss for the sale of securities
based upon market values as of the date that the Merger Agreement was
announced (November 18, 1994). The actual loss on the sale of securities,
$44.2 million before taxes, $23.3 million after taxes, was realized between
November 21, 1994 and December 9, 1994.
H-38
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (continued)
While the amounts set forth above represent the Company's best estimate
of the restructuring costs that will be incurred, the ultimate level of such
charges will not be precisely determinable until the Closing Date. The cost of
terminating computer hardware leases takes into consideration the estimated
residual value of the equipment when it is returned to the lessor. Such
residual values could be severely impacted and the cost of terminating the
leases increased if the manufacturer releases upgraded versions of the
equipment prior to the lease termination date.
The Company continues to review its staffing requirements. This review
will be completed by the Closing Date and may result in lower staffing levels.
Accordingly, the cost of severance and related benefits may range from the
above listed $21.1 million to approximately $24.0 million.
The payout for stock options is based upon various assumptions, including
the Determined Value (as defined under "Effect of Transactions on UST
Employees and UST Benefit Plans -- Retained Plans" in the Proxy
Statement-Prospectus to which this Information Statement is attached as
Appendix H) of the shares of UST Common Stock, the number of stock options
that are outstanding as of the Closing Date and the average exercise price of
such outstanding options. As a result, the actual amount of the cash payment
to be made in respect of stock options will not be determinable until the
Closing Date.
Pursuant to the Post Closing Covenants Agreement, the Company has agreed
to maintain a minimum net worth for four years following the Distribution. See
"The Distribution -- Terms of the Post Closing Covenants Agreement -- Minimum
Net Worth". After giving effect to the charges set forth in this note (l), the
Company believes that its initial annual dividend will be $1.00 per share. See
"Special Factors -- Dividends and Dividend Policy".
(m) Disposition Adjustments (Pro Forma Condensed Statement of
Income) -- The Disposition Adjustments reflect the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger. The Disposition
Adjustments include the revenues and expenses of the Chase Acquired Business
as allocated in accordance with the allocation methodologies utilized by the
Company's internal management reporting system. The amount of net interest
income is based upon the average Investable Deposits multiplied by an
appropriate interest rate. The rate is based upon the rates earned by the
Company's long- and short-term securities. The rates were 5.44% for the
nine-month period ended September 30, 1994, and 5.39% for the year ended
December 31, 1993.
While the average Investable Deposits for the nine-month period were
approximately $827 million, the Investable Deposits are subject to seasonal
fluctuation. Historically, Investable Deposits are higher in the first and
third quarters than in the second and fourth quarters. The Average Investable
Deposits for the first and third quarters of 1994 were $1,119 million and $833
million, respectively. The Investable Deposits for the second quarter of 1994
were $555 million. During 1993, Investable Deposits for the first and third
quarters were $1,096 million and $1,227 million, respectively, compared with
$783 million and $845 million, for the respective second and fourth quarters
of 1993. As a result of the Investable Deposits' seasonality, the Chase
Acquired Business' relative contribution of net interest income to UST is
significantly greater during the first and third quarters than in the second
and fourth quarters. The disposition of the Chase Acquired Business
substantially eliminates the seasonal fluctuations in the Company's net
interest income.
Fees and Other Income represent amounts earned by the Chase Acquired
Business. In addition, fees earned by the Company's asset management business
from customers of the Chase Acquired Business are included in Fees and Other
Income, which fees are expected to be earned by Chase following the
Distribution and the Merger. Expenses reflect direct costs incurred and
allocations of other costs in accordance with the Company's internal
management reporting system.
(n) Back Office and Corporate Staff -- The $46.3 million and $33.8
million of back office and corporate staff charges for the year ended December
31, 1993, and nine months ended September 30, 1994, respectively, are derived
from the Company's internal management accounting system and represent the
amounts allocated to the Chase Acquired Business for services provided. Back
office support costs include securities processing
H-39
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (continued)
and custody, check clearance and computer services processing and support and
corporate staff cost allocations include financial, personnel, legal and
general services support functions. Such back office support costs have been
added to the expenses of the Company Before Other Adjustments because such
costs were not eliminated in connection with the disposition of the Chase
Acquired Business. The estimated downsizing of the corporate staff and the
impact of the Services Agreement are reflected in the Other Adjustments.
(o) Other Income -- Reflects the elimination of certain revenues
generated from computer processing activities conducted for third parties
which will no longer be provided following the Distribution and the Merger.
(p) Salaries and Benefits, Net Occupancy and Other Expenses -- Reflects
the reduction of personnel, net occupancy costs and other expenses, as
indicated, resulting from the Distribution and the Merger, the downsizing of
the Company's corporate staff and the Services Agreement.
(q) Income Taxes -- Income taxes reflected in the Pro Forma Statements of
Income are recorded at the statutory Federal tax rate of 35%, adjusted for the
impact of state and local taxes and nondeductible items. The resulting
effective tax rate for the Company was approximately 39% in both periods
presented.
Taxes have been calculated on the "Other Adjustments" in the Pro Forma
Statement of Condition at the statutory Federal tax rate of 35%, adjusted for
state and local taxes and nondeductible items. The resulting effective tax
rate was approximately 43%. The Company anticipates realizing these tax
benefits in the periods in which the adjustments are reported on the Company's
tax returns.
(r) Pro Forma Net Income Per Share -- Net income per share has been
calculated on a basis consistent with the Company's past practices and was
determined by dividing "Net Income -- Company Pro Forma" by the estimated
fully diluted average shares outstanding for each period. Estimated fully
diluted average shares outstanding include the actual average shares
outstanding for each of the periods, the assumed exercise of approximately
236,000 stock options and the dilutive effects of approximately 675,000
phantom shares granted under the Transferred Plans. Dividends paid on phantom
shares have been added back to net income on an after-tax basis for this
calculation.
(s) For the purposes of determining the Pro Forma Condensed Statement of
Average Balances, the Chase Acquired Business average overdrafts are included
in Other Assets.
(t) For the purposes of determining the Pro Forma Condensed Statement of
Average Balances, all Other Adjustments are assumed to have occurred as of
January 1, 1994.
H-40
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the five fiscal years through the period ended December 31, 1993 and
for the nine months ended September 30, 1994 and 1993. The information has
been derived from the audited financial statements and the unaudited financial
statements of the Company. For financial reporting purposes, the Company is a
"successor registrant" to UST and as a result, the historical financial
information of the Company set forth below and elsewhere in this Information
Statement is the historical financial information of UST. The selected
financial data of the Company for the nine-month periods ended September 30,
1994 and 1993, in management's opinion, includes all adjustments, consisting
of only normal recurring accruals, necessary for a fair presentation of
financial position and the results of operations of the Company for the
unaudited interim periods. Historical financial information may not be
indicative of the Company's performance following the Distribution. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which follows this section. The results for the nine-month period
ended September 30, 1994 are not necessarily indicative of the results to be
expected for 1994. See the Pro Forma Condensed Statements of Income included
elsewhere herein for per share data presented on a pro forma basis, adjusted
to reflect the Distribution and the Merger.
<TABLE>
Nine Months
ended
September 30, Year ended December 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(Dollars in Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees..................... $ 220.0 $ 193.7 $ 264.1 $ 235.8 $ 204.9 $ 184.2 $ 177.8
Net Interest Income.......................... 82.4 88.6 116.2 108.9 96.1 89.4 83.3
Provision for Credit Losses.................. (1.5) (3.5) (4.0) (6.0) (6.0) (8.4) (1.6)
Other Income................................. 9.7 6.5 11.9 9.7 8.7 13.0 16.6
-------- -------- -------- -------- -------- -------- --------
Total Operating Income Net of Interest
Expense and Provision for Credit Losses.... 310.6 285.3 388.2 348.4 303.7 278.2 276.1
Total Operating Expenses..................... 247.6 227.8 315.5 289.5 254.9 259.7 232.9
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Income Tax
Expense and Cumulative Effect of Accounting
Changes.................................... 63.0 57.5 72.7 58.9 48.8 18.5 43.2
Income Tax Expense........................... 26.5 24.4 30.4 22.4 17.4 6.8 12.5
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Cumulative
Effect of Accounting Changes............... 36.5 33.1 42.3 36.5 31.4 11.7 30.7
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes...................................... -- -- -- (7.8) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................... $ 36.5 $ 33.1 $ 42.3 $ 28.8 $ 31.4 $ 11.7 $ 30.7
-------- -------- -------- -------- -------- -------- --------
Per Common Share:
Primary:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.69 $ 3.35 $ 4.26 $ 3.76 $ 3.32 $ 1.24 $ 3.08
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.69 $ 3.35 $ 4.26 $ 2.96 $ 3.32 $ 1.24 $ 3.08
-------- -------- -------- -------- -------- -------- --------
Fully Diluted:
Income From Operations Before Cumulative
Effect of Accounting Changes............. $ 3.68 $ 3.34 $ 4.25 $ 3.74 $ 3.27 $ 1.23 $ 3.07
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes.................................... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income................................. $ 3.68 $ 3.34 $ 4.25 $ 2.94 $ 3.27 $ 1.23 $ 3.07
-------- -------- -------- -------- -------- -------- --------
Cash Dividends Declared Per Share............ 1.50 1.41 1.88 1.72 1.60 1.60 1.52
At Period End:
Total Assets............................... $ 4,019 $ 3,690 $ 3,186 $ 2,951 $ 2,917 $ 2,778 $ 2,526
Total Deposits............................. 2,383 2,554 2,487 2,355 2,108 2,040 1,987
Long-Term Debt............................. 63 67 65 65 69 71 75
Stockholders' Equity....................... 240 217 229 197 182 166 177
Earnings Ratios:
Return on Average Total Assets............. 1.21% 1.16% 1.11% 0.83% 1.09% 0.46% 1.26%
Return on Average Stockholders' Equity..... 21.48% 21.67% 20.47% 15.28% 18.05% 6.75% 17.29%
Capital Ratios:
As a Percentage of Risk-Adjusted Period End
Total Assets:
Tier 1 Capital............................. 14.19% 13.23% 14.08% 13.71% 10.81% 9.90% 9.99%
Total Capital.............................. 15.51% 14.71% 15.47% 15.16% 12.03% 11.22% 11.26%
Tier 1 Leverage.............................. 5.70% 5.11% 5.60% 5.78% 6.68% 6.72% 7.60%
- ---------------
*Columns may not total due to roundings.
</TABLE>
H-41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For financial reporting purposes, the Company is a "successor registrant"
to UST and, as such, all financial information of the Company included in this
discussion and included elsewhere in this Information Statement is the
historical financial information of UST. Therefore, references to the
"Company" in this discussion are references to "UST" when referring to
historical information.
The following is a discussion of the Company's results of operations and
financial condition for the comparable nine months ended September 30, 1994
and 1993, and for each of the years ended December 31, 1993, 1992 and 1991.
See "Recent Developments" for a discussion of the Company's unaudited results
for the year and three-month period ended December 31, 1994. Where
appropriate, references are made to the Pro Forma Financial Statements, which
reflect the Disposition. Certain items reported in prior periods have been
reclassified to conform to the current presentation.
Results of Operations
Nine Months Ended September 30, 1994 Compared to the Nine Months Ended
September 30, 1993
Net income for the third quarter ended September 30, 1994 was $12.9
million, an increase of 8.6% over the $11.9 million earned in the third
quarter of 1993. For the nine-month period ended September 30, 1994, net
income was $36.5 million, a 10.2% improvement over the $33.1 million of net
income for the same period in 1993.
The Company's return on average stockholders' equity for the first nine
months of 1994 was 21.5%, compared to 21.7% for the first nine months of 1993.
Its return on average total assets was 1.21% for the nine months ended
September 30, 1994, versus 1.16% for the nine months ended September 30, 1993.
<TABLE>
Net Interest Income (Taxable Equivalent Basis)
Three-Month Nine-Month Periods
Periods Ended
September 30, Ended September 30,
----------------- -------------------
1994 1993 1994 1993
------- ------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Interest Income....................................... $50,378 $45,497 $136,762 $128,674
Taxable Equivalent Adjustment......................... 1,183 1,364 3,554 4,420
------- ------- -------- --------
Total Interest Income................................. 51,561 46,861 140,316 133,094
Interest Expense...................................... 22,365 13,909 54,371 40,115
------- ------- -------- --------
Net Interest Income................................... $29,196 $32,952 $ 85,945 $ 92,979
======= ======= ======== ========
</TABLE>
Net interest income, on a taxable equivalent basis, was $3.8 million
lower in the third quarter of 1994, compared to the third quarter of 1993. For
the first nine months of 1994, net interest income, on a taxable equivalent
basis, was $7.0 million lower than net interest income for the first nine
months of 1993.
H-42
<PAGE>
<TABLE>
Three-Month Nine-Month
Periods Ended Periods Ended
September 30, September 30,
--------------- ---------------
1994 1993 1994 1993
------ ------ ------ ------
(Dollars In Millions)
<S> <C> <C> <C> <C>
Average Volume
Interest Earning Assets..................................... $3,358 $3,391 $3,269 $3,114
Interest Bearing Liabilities................................ 2,153 1,776 2,001 1,691
------ ------ ------ ------
Net Interest Earning Assets................................. $1,205 $1,615 $1,268 $1,423
====== ====== ====== ======
Non-Interest Bearing Deposits............................... $1,607 $1,963 $1,639 $1,776
====== ====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets..................................... 6.12% 5.50% 5.73% 5.71%
Cost of Funding Interest Earning Assets..................... 2.65 1.63 2.22 1.72
------ ------ ------ ------
Net Yield on Interest Earning Assets........................ 3.47% 3.87% 3.51% 3.99%
====== ====== ====== ======
</TABLE>
The Company's net interest income is sensitive to its volume of
non-interest bearing deposits which are primarily derived from the Processing
Business, as well as to the level of interest rates on interest-earning assets
and interest-bearing liabilities. The Company's level of non-interest bearing
funds (primarily non-interest bearing deposits) for the third quarter of 1994
decreased 25.4% ($411 million) from the same period during 1993. For the first
nine months of 1994, the Company's average volume of non-interest bearing
funds declined 10.9% ($155 million) from the same period during 1993. These
declines were principally a result of a reduction in the amount of the
Processing Business' balances. For the nine month period ended September 30,
1994, the Processing Business' averaged $1,117 million compared with $1,300
million for the 1993 period.
The Processing Business' non-interest bearing deposit balances are
seasonal. Historically, non-interest bearing deposit balances related to the
Processing Business are higher in the first and third quarters than in the
second and fourth quarters. The average non-interest bearing deposit balances
for the first and third quarters of 1994 derived from the Processing Business
were approximately $1,370 million and $1,126 million, respectively, compared
with $832 million of average non-interest bearing deposit balances for the
second quarter. As a result, the Processing Business' relative contribution of
net interest income to the Company was significantly higher during each of the
first and third quarters relative to its contribution during the second
quarter of 1994. This seasonality has been evident during each of the three
years ended December 31, 1993.
The volume of the Processing Business' non-interest bearing deposits is
generally inversely related to the level of interest rates. Thus, in periods
of decreasing interest rates, the average balance of non-interest bearing
deposits derived from the Processing Business tends to increase, whereas in
periods of rising interest rates, the average balance typically declines.
Interest rates were low in 1993 and the Processing Business experienced its
highest level of average deposit balances.
The Company's consolidated average non-interest bearing deposit balances
for the third quarter of 1994 were $1,607 million, compared to $1,963 million
for the third quarter of 1993. The Processing Business' average non-interest
bearing deposit balances were $1,126 million and $1,519 million, respectively,
for the third quarter of 1994 and 1993.
The net yield on average interest-earning assets was 3.47% for the third
quarter and 3.51% for the nine months ended September 30, 1994, compared to
3.87% for the third quarter and 3.99% for the nine months ended September 30,
1993. The average interest rate earned on the Company's securities portfolio
was 5.43% for the third quarter of 1994, compared to 5.59% for the third
quarter of 1993. For the first nine months of 1994, the average interest rate
earned in the Company's securities portfolio was 5.21%, as compared to 5.78%
for the first nine months of 1993. The lower average interest rate earned in
the third quarter and nine-month periods of 1994, as compared with the same
periods in 1993, reflects the reinvestment of the funds obtained from
maturities and sales of securities at lower interest rates and with shorter
maturities.
H-43
<PAGE>
<TABLE>
Fee Income
Three-Month Nine-Month Periods
Periods Ended
September 30, Ended September 30,
------------------ % -------------------- %
1994 1993 Change 1994 1993 Change
------- ------- ------- -------- -------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management.............. $42,354 $38,688 9.5% $127,005 $110,909 14.5%
Corporate Trust and Agency.... 5,465 4,682 16.7 16,029 13,938 15.0
------- ------- -------- --------
Total Core Businesses....... 47,819 43,370 10.3 143,034 124,847 14.6
------- ------- -------- --------
Processing Business:
Funds Services................ 19,072 17,094 11.6 56,533 50,452 12.1
Institutional Asset
Services.................... 6,922 6,099 13.5 20,398 18,442 10.6
------- ------- -------- --------
Total Processing Business... 25,994 23,193 12.1 76,931 68,894 11.7
------- ------- -------- --------
Total Fiduciary and Other Fees..... 73,813 66,563 10.9 219,965 193,741 13.5
Other Income:
Securities Gains (Losses), Net..... 25 (3) -- 2,059 22 --
Other.............................. 3,138 2,123 47.8 7,661 6,486 18.1
------- ------- -------- --------
Total Fee Income................... $76,976 $68,683 12.1% $229,685 $200,249 14.7%
======= ======= ====== ======== ======== ======
</TABLE>
Total fiduciary and other fees increased $7.3 million in the third
quarter of 1994 from the third quarter of 1993. The first nine months of 1994
include six months, or $3.8 million, of fiduciary and other fees attributable
to U.S. Trust Company of the Pacific Northwest ("Pacific Northwest"), formerly
Capital Trust Company, a trust and investment management firm acquired on July
7, 1993. Excluding such $3.8 million of fiduciary and other fees, the Core
Businesses' fiduciary and other fee income would have been 11.1% higher than
such fee income for the comparable 1993 period. In the third quarter of 1994,
$35.8 million of the Core Businesses' fiduciary and other fees were related to
the market value of assets held in clients' accounts, compared with $34.7
million in the third quarter of 1993. For the nine-month period ended
September 30, 1994, $107.1 million of the Core Businesses' fiduciary and other
fees were related to the market value of assets held in clients' accounts,
compared with $99.6 million for the nine-month period ended September 30,
1993. The remaining fiduciary and other fees of the Core Businesses were
related to transaction-based services.
Total assets under management increased 5.5% to $32.4 billion at
September 30, 1994, compared to $30.7 billion at September 30, 1993. The
Processing Business included approximately $2.6 billion of assets under
management as of September 30, 1994, compared to $1.8 billion as of September
30, 1993. Substantially all of these assets derive from short-term cash
management account relationships. In addition, the Processing Business
included approximately $3.9 billion of assets from security lending
relationships with corporate and institutional custody clients which are
reported in the table below under "Processing Business -- Custody and Other
Non-Managed Assets". The average rates charged for short-term cash management
and security lending services are significantly less than the average rates
charged on the entire portfolio of assets under management. It is anticipated
that substantially all of those assets under management, including the
security lending relationships, will be managed by Chase following the
Disposition. Fee income generated by these activities is included in the
Processing Business' fiduciary fees and other income. Total assets under
management and administration increased 7.5% to $419.3 billion at September
30, 1994, compared to $390.1 billion at September 30, 1993. The following
table details assets under management and administration for the Company and
the Processing Business as of September 30, 1994 and 1993.
H-44
<PAGE>
<TABLE>
September 30,
----------------- %
1994 1993 Change
------ ------ ------
(Dollars In Billions)
<S> <C> <C> <C>
Core Businesses:
Assets Under Management........................................... $ 32.4 $ 30.7 5.5%
Personal Custody.................................................. 7.7 8.5 (8.8)
Corporate and Municipal Trusteeships and Agency Relationships*.... 156.3 147.4 6.0
------ ------
Total Assets Under Management and Administration for the Core
Businesses.................................................. 196.4 186.6 5.3
------ ------ ------
Processing Business:
Custody and Other Non-Managed Assets:
Institutional Services.......................................... 116.0 100.3 15.6
Funds Services**................................................ 106.9 103.2 3.6
------ ------
Total Assets Under Management and Administration for the
Processing Business........................................ 222.9 203.5 9.5
------ ------
Total Assets Under Management and Administration.................. $419.3 $390.1 7.5%
====== ====== =====
- ---------------
* Includes corporate trust and agency and bond immobilization assets
presented at par value.
** Includes UIT assets presented at par value and mutual fund custody assets
presented at fair market value.
</TABLE>
Other Income
Net securities gains in the third quarter of 1994 and both the third
quarter and first nine months of 1993 were negligible. Net securities gains
totaled $2.1 million for the first nine months of 1994, reflecting the sale of
certain securities classified as available for sale, mainly Treasury
Securities, during the first quarter.
See "-- Impact of the Disposition on Liquidity" for a discussion of
securities sold by the Company during the fourth quarter of 1994.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses and fee income, for the Core Businesses and the Processing
Business for the nine-month periods ended September 30, 1994 and 1993 are as
follows:
<TABLE>
Nine-Month
Periods Ended
September 30,
---------------------
1994 1993
-------- --------
(Dollars In Thousands)
<S> <C> <C>
Core Businesses Revenues............................... $196,660 $168,476
Processing Business Revenues........................... 113,916 116,832
-------- --------
Total Revenues......................................... $310,576 $285,308
======== ========
</TABLE>
Revenues of the Core Businesses and the Processing Business are based
upon the allocation methodologies utilized by the Company's internal
management reporting system. The amount of net interest income allocated to
each business is based upon the average net deposit balances supplied by each
business multiplied by an appropriate internally-generated interest rate. The
"net deposit" balances consist of both interest and non-interest bearing
deposit balances reduced by overdraft loans and cash items in the process of
collection. The internally-generated interest rate is based upon the actual
interest rates earned by the Company on long-and short-term securities for the
relevant period. Fee revenue is allocated directly to the businesses
performing the service from which the revenue is derived.
H-45
<PAGE>
<TABLE>
Operating Expenses
Three-Month Nine-Month Periods
Periods Ended
September 30, Ended September 30,
----------------- % ------------------- %
1994 1993 Change 1994 1993 Change
------- ------- ------ -------- -------- ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Salaries...................................... $34,253 $30,895 (10.9 )% $100,530 $ 88,311 (13.8 )%
Employee Benefits and Incentive
Compensation................................ 15,787 16,722 5.6 52,550 50,729 (3.6 )
------- ------- -------- --------
Total Salaries and Benefits................... 50,040 47,617 (5.1 ) 153,080 139,040 (10.1 )
Net Occupancy................................. 10,312 9,947 (3.7 ) 29,445 29,442 --
Equipment..................................... 4,794 4,420 (8.5 ) 13,541 13,044 (3.8 )
Other......................................... 17,376 16,344 (6.3 ) 51,556 46,283 (11.4 )
------- ------- -------- --------
Total Operating Expenses...................... $82,522 $78,328 (5.4 )% $247,622 $227,809 (8.7 )%
======== ======== ======= ========= ========= =======
</TABLE>
Operating expenses in the third quarter of 1994 increased $4.2 million to
$82.5 million from the $78.3 million reported in the third quarter of 1993.
For the nine months ended September 30, 1994, operating expenses amounted to
$247.6 million, a $19.8 million increase over the $227.8 million incurred in
the nine months ended September 30, 1993. Salaries and employee benefit
expenses, including sales incentives and commissions, increased $2.4 million
in the third quarter and $14.0 million for the first nine months of 1994, as
compared to the same periods in 1993, reflecting increases in the professional
staffs of the asset management and mutual funds services divisions and related
employee benefit expenses. For the third quarter of 1994, the ratio of total
operating expenses to taxable equivalent total operating income, net of
interest expense and provision for credit losses, was 78.1%, compared to 77.8%
for the third quarter of 1993. For the nine months ended September 30, 1994,
the ratio of total operating expenses to taxable equivalent total operating
income, net of interest expense and provision for credit losses, was 78.8%, as
compared to 78.6% for the first nine months ended September 30, 1993.
Operating expenses applicable to the Core Businesses and the Processing
Business for the nine-month periods ended September 30, 1994 and 1993 are as
follows:
<TABLE>
Nine-Month Periods
Ended September 30,
----------------------
1994 1993
--------- ---------
(Dollars In Thousands)
<S> <C> <C>
Core Businesses:
Salaries and Benefits........................ $ 89,483 $ 79,447
Net Occupancy................................ 15,278 13,784
Other........................................ 37,706 30,394
--------- ---------
Subtotal..................................... 142,467 123,625
--------- ---------
Processing Business:
Salaries and Benefits........................ 50,439 49,216
Net Occupancy................................ 7,519 6,806
Other........................................ 27,861 21,766
--------- ---------
Subtotal..................................... 85,819 77,788
--------- ---------
Corporate Overhead............................. 19,336 26,396
--------- ---------
Total Operating Expenses............. $ 247,622 $ 227,809
======== ========
</TABLE>
Operating expenses associated with the Core Businesses and the Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and policies
have been developed and implemented with the objective of reflecting the
economics of the respective businesses. Direct costs are those expenses that
can be directly attributable to a specific
H-46
<PAGE>
business activity. Direct expenses include actual salaries and benefits of the
employees of the business, net occupancy costs based upon actual space
utilized and furniture and equipment specifically employed by the business.
The Company has developed methodologies to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a
direct relationship between the level of business activity and the amount of
cost incurred. Such methodologies employ volume or percentage allocation bases
or the activity of other expense or balance sheet accounts. Indirect costs
include computer, securities clearing and bank operations transfer charges
which are allocated on the basis of volume statistics.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and
other general purpose corporate expenses.
Income Taxes
The Company's effective tax rate for the 1994 third quarter was 41.1%,
compared with an effective tax rate of 43.1% for the 1993 period. The 1993 tax
rate included the impact of the increase in the federal corporate income tax
rate, which was retroactive to January 1, 1993. For the nine months ended
September 30, 1994, the effective tax rate was 42.0% versus 42.4% in 1993.
Year Ended December 31, 1993 Compared to the Year Ended December 31, 1992 and
Year Ended December 31, 1992 Compared to the Year Ended December 31, 1991:
Income from operations for the year ended December 31, 1993 amounted to
$42.3 million, an increase of 15.7% over the $36.5 million earned in the year
ended December 31, 1992. For the year ended December 31, 1992 compared to the
year ended December 31, 1991, income from operations increased 16.4%.
<TABLE>
Net Interest Income (Taxable Equivalent Basis)
Years Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Interest Income............................................ $169,600 $173,211 $191,354
Taxable Equivalent Adjustment.............................. 5,810 8,237 10,228
-------- -------- --------
Total Interest Income...................................... 175,410 181,448 201,582
Interest Expense........................................... 53,358 64,323 95,256
-------- -------- --------
Net Interest Income........................................ $122,052 $117,125 $106,326
======== ======== ========
Percentage Increase from Prior Period...................... 4.2% 10.2% 4.8%
======== ======== ========
</TABLE>
Significant influences on the Company's net interest income over the past
three years included: the average balance of net non-interest bearing funds
primarily attributable to the Processing Business; a reduction in the average
yield on short-term and variable rate investments and loans; and an increase
in total interest earning assets.
H-47
<PAGE>
<TABLE>
Years Ended December 31,
----------------------------
1993 1992 1991
------ ------ ------
(Dollars In Millions)
<S> <C> <C> <C>
Average Volume
Interest Earning Assets......................................... $3,086 $2,834 $2,447
Interest Bearing Liabilities.................................... 1,699 1,674 1,606
------ ------ ------
Net Interest Earning Assets..................................... $1,387 $1,160 $ 841
====== ====== ======
Percentage Increase from Prior Period........................... 19.6% 38.0% 12.5%
Non-Interest Bearing Deposits................................... $1,761 $1,508 $1,021
====== ====== ======
Percentage Increase from Prior Period........................... 16.8% 47.7% 11.2%
====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets......................................... 5.68% 6.40% 8.24%
Cost of Funding Interest Earning Assets......................... 1.73 2.27 3.89
------ ------ ------
Net Yield on Interest Earning Assets............................ 3.95% 4.13% 4.35%
====== ====== ======
</TABLE>
The net yield on interest earning assets is dependent upon the Company's
average level of non-interest bearing funds, the maturity structure of the
Company's interest earning assets and interest bearing liabilities and the
general interest rate environment. If the average volume of such funds is
stable, the net yield will generally be higher in a rising interest rate
environment. Conversely, in a declining interest rate environment, the net
yield will be lower.
Temporary inflows of deposits, mainly related to the Processing Business,
are invested in high quality liquid short-term financial instruments that
ensure the Company an adequate rate of return, while maintaining liquidity and
credit quality to satisfy the eventual outflow of the deposits.
During 1993, average interest earning assets increased by $148 million of
private banking loans and $160 million of short-term financial instruments.
The higher volume of average interest earning assets was funded primarily by
increases in average net non-interest bearing funds, derived principally from
the Processing Business.
The increase in average interest earning assets during 1992 was primarily
attributable to increases in private banking loans ($168 million) and high
quality securities ($365 million). The level of average short-term financial
instruments was reduced during this period ($178 million) and replaced by
Treasury Securities having an average maturity of less than one year. The
higher volume of average interest earning assets was funded mainly by
increases in average net non-interest bearing funds, principally related to
the Processing Business.
H-48
<PAGE>
<TABLE>
Fee Income
Years Ended December 31, % Change
------------------------------ -------------
1993 1992 1991 93-92 92-91
-------- -------- -------- ----- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management............................. $152,362 $131,188 $113,031 16.1 % 16.1 %
Corporate Trust and Agency................... 18,775 16,916 15,251 11.0 10.9
-------- -------- --------
Total Core Businesses................... 171,137 148,104 128,282 15.6 15.5
-------- -------- --------
Processing Business:
Funds Services............................... 68,196 63,412 53,603 7.5 18.3
Institutional Asset Services................. 24,742 24,308 23,063 1.2 5.4
-------- -------- --------
Total Processing Business............... 92,938 87,720 76,666 5.9 14.4
-------- -------- --------
Total Fiduciary and Other Fees.................... 264,075 235,824 204,948 12.0 15.1
Other Income:
Securities Gains, Net............................. 3,025 2,801 1,558 8.0 79.8
Other............................................. 8,863 6,939 7,165 27.7 (3.2 )
-------- -------- --------
Total Fees and Other Income....................... $275,963 $245,564 $213,671 12.4 % 14.9 %
======== ======== ======== ==== ====
Total Fees and Other Income as a Percent of
Taxable Equivalent Operating Income, Net of
Interest Expense and Provision for Credit
Losses.......................................... 70.0% 68.8% 68.1%
======== ======== ========
</TABLE>
Fiduciary and other fees are the largest component of both the Core
Businesses and Processing Business revenues. Fee-based services provide a
relatively stable core source of revenues that are less subject to change in
periods of interest rate volatility as compared to net interest income. The
credit loss experience from fee-based activities has been and continues to be
negligible.
Fiduciary fees are based typically on the market value or par value of
assets under management and administration, the volume of securities
transactions, income collection transactions and other services rendered.
Most asset management fees are determined on an incremental scale so that
as the value of a client's portfolio grows in size, the Company receives a
smaller percentage of the increasing value as fee income. Therefore, market
value or other incremental changes in a portfolio's size do not necessarily
have a proportionate impact on the level of fiduciary fees.
For the year ended December 31, 1993, $133.8 million of the Core
Businesses' fiduciary and other fees were related to the market value of
assets held in clients' accounts, compared with $119.8 million and $103.3
million, respectively, for the years ended December 31, 1992, and 1991. The
remaining fiduciary and other fees of the Core Businesses were related to
transaction-based services.
H-49
<PAGE>
The following table provides details of assets under management and
administration for the last six years. Unless otherwise noted, asset values
are measured at their estimated fair value.
<TABLE>
Compound
December 31, Growth
--------------------------------------------------- Rate
1993 1992 1991 1990 1989 1988 88-93
------ ------ ------ ------ ------ ------ --------
(Dollars In Billions)
<S> <C> <C> <C> <C> <C> <C> <C>
Core Businesses:
Assets Under Management............. $ 32.2 $ 26.5 $ 21.9 $ 18.1 $ 18.0 $ 15.3 16.0%
Personal Custody.................... 7.9 6.0 6.8 6.1 4.7 4.2 13.5
Corporate and Municipal Trusteeships
and Agency Relationships*......... 152.2 134.6 121.5 109.6 102.3 89.3 11.3
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration for the Core
Businesses..................... 192.3 167.1 150.2 133.8 125.0 108.8 12.1
------ ------ ------ ------ ------ ------
Processing Business:
Custody and Other Non-Managed
Assets:
Institutional Services............ 97.6 92.9 81.8 81.6 68.0 57.9 11.0
Funds Services**.................. 103.3 91.8 84.3 62.4 54.3 51.7 14.9
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration for the
Processing Business............ 200.9 184.7 166.1 144.0 122.3 109.6 12.9
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration.................... $393.2 $351.8 $316.3 $277.8 $247.3 $218.4 12.5%
====== ====== ====== ====== ====== ====== ========
- ---------------
* Includes corporate trust and agency and bond immobilization assets
presented at par value.
** Includes UIT assets presented at par value and mutual fund custody assets
presented at fair market value.
</TABLE>
Assets Under Management
Assets under management and administration consist primarily of equities,
fixed income instruments and cash. The Company's investment professionals
manage these assets for individual, family, pooled, and mutual funds
investment clients.
Asset management fiduciary fees are derived mainly from investment
management and related services to individuals and institutions. These
services include investment portfolio management, estate and tax planning and
personal custody. Asset management fiduciary fees are based primarily on the
market value of the assets in clients' accounts. In general, fiduciary fees
are influenced by a variety of factors, including growth or decline of stock
and bond market levels, fee increases, revenue from new services, outflow of
assets due to terminating trusts, disbursements, gifts, etc., acquisitions,
and new business. The increase in asset management fiduciary fees during 1993
is related to higher market values, new business and acquisitions. Assets
under management as of December 31, 1993 increased by 21.8% from assets under
management as of December 31, 1992.
Asset management fiduciary fees in 1993 include revenues from Pacific
Northwest, a trust and investment management firm acquired in July 1993, and a
full year of revenues from Campbell, Cowperthwait & Co., Inc. ("Campbell"), an
investment advisory company acquired in December 1992. Asset management
fiduciary fees in 1992 include revenues from Delafield, Harvey, Tabell
("Delafield"), an investment advisory company acquired in April 1992.
Fiduciary fees from these acquisitions amounted to less than 5% and 3% of
total asset management fiduciary fees in 1993 and 1992, respectively. These
acquisitions accounted for 5.6% and 4.0% of assets under management as of
December 31, 1993 and 1992, respectively.
As previously noted, the Company believes it is well positioned to
increase fee revenue due to favorable growth rates in the overall affluent
market, expansion into new geographic markets, selective acquisitions,
development of new services, solicitation of new market segments and new
business development. Increases in
H-50
<PAGE>
fee revenue are expected to come from the Company's institutional asset
management business, where the Company has developed a dedicated sales force
and has expanded the range of investment products it offers. Another key
strategy for increasing fee revenues is the Company's recently implemented
initiative to broaden the distribution of its investment products via third
parties.
Corporate trust and agency activities include the indenture trustee
business for corporate and municipal debt issues, as well as complex new types
of securities. Corporate trust fiduciary fees are affected by the volume of
new debt issuances and redemptions at, or in advance of, maturity of existing
issues. The volume of corporate and municipal trusteeships and agency
relationships (measured by the par value of the outstanding debt) increased
13.1% in 1993 and 10.8% in 1992.
Assets Under Administration -- The Processing Business
Institutional asset services ("IAS") includes master trust and custody
services, securities lending and global custody services to corporate employee
benefit funds, public funds, financial institutions and endowments and
foundations. IAS fiduciary fees are influenced by the market value of its
accounts and transactional activity. IAS assets administered in custody
accounts increased 5.1% in 1993 and 13.6% in 1992.
Funds services provides custody administration, fund accounting and
administration and transfer agent activities for open and closed-end mutual
funds and custodian, recordkeeping, income collection and disbursement, and
transfer agent services for taxable and tax-exempt unit investment trusts.
Funds services assets under administration increased by 12.5% in 1993 and
8.9% in 1992. This increase in assets is primarily attributable to expanded
business with mutual funds, both open and closed-end. The par value of bonds
held in custody for unit investment trusts has declined over the past few
years, reflecting accelerated prerefundings and redemptions of municipal
securities underlying unit investment trusts by issuers taking advantage of
decreasing interest rates during the same period. While this has reduced fee
income earned from unit investment trusts, the redemption activity has also
temporarily increased the volume of non-interest bearing deposits reflecting
uninvested balances derived from these accounts.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses and fee income, for the Core Businesses and the Processing
Business for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
Years Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Core Businesses Revenues................................... $236,815 $206,029 $178,010
Processing Business Revenues............................... 151,390 142,423 125,734
-------- -------- --------
Total Revenues............................................. $388,205 $348,452 $303,744
======== ======== ========
</TABLE>
Revenues of the Core Businesses and the Processing Business are allocated
in accordance with the allocation methodologies utilized by the Company's
internal management reporting system. The amount of net interest income
allocated to each business is based upon the average net deposit balances
supplied by each business multiplied by an appropriate, internally-generated,
interest rate. The "net deposit" balances consist of both interest and
non-interest bearing deposit balances reduced by overdraft loans and cash
items in the process of collection. The internally-generated interest rate is
based upon the actual interest rates earned by the Company on long- and
short-term securities for the relevant period. Fee revenue is allocated
directly to the businesses performing the service from which the revenue is
derived.
H-51
<PAGE>
Operating Expenses
The following table provides details of operating expenses other than
interest expense and provision for credit losses for the last three years.
<TABLE>
Years Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Salaries................................................... $120,770 $104,506 $ 93,354
Employee Benefits and Incentive Compensation............... 68,383 60,426 47,877
Net Occupancy.............................................. 40,035 37,420 36,939
Equipment.................................................. 18,536 18,591 19,507
Other...................................................... 67,796 68,589 57,260
-------- -------- --------
Total...................................................... $315,520 $289,532 $254,937
======== ======== ========
Percentage Increase (Decrease) From Prior Period........... 9.0% 13.6% (1.8)%
======== ======== ========
Total Operating Expenses as a Percent of Taxable Equivalent
Operating Income, Net of Interest Expense and Provision
for Credit Losses........................................ 80.1% 81.2% 81.2%
======== ======== ========
</TABLE>
Salaries in 1993 increased 15.6% from 1992 and increased 11.9% in 1992
from 1991. The increases were due mainly to staff additions in the asset
management businesses and Processing Business. The number of full-time
equivalent employees increased 12.1% to 2,574 at December 31, 1993, compared
to 2,296 at December 31, 1992. During 1992, the number of full-time equivalent
employees increased 8.6% to 2,296 from 2,114. Excluding the impact of the
acquisitions of Delafield, Campbell and Pacific Northwest, salaries increased
by 13.3% in 1993 and 9.9% in 1992.
Employee benefits and incentive compensation increased 14.7% in 1993 from
1992 and increased 26.2% in 1992 compared with 1991. These changes were due
primarily to incentive award plans, which are determined based upon the
Company's financial performance as measured by its return on stockholders'
equity, and to other employee benefits whose expense level is a function of
staffing levels. In addition to the approximately 1,120 of the Company's
employees that will be employed by Chase following the Disposition, the
Company will reduce its staffing levels by approximately 153 employees, which
will reduce corporate staff salaries and related employee benefits and
incentive compensation by an estimated $12.4 million on an annualized basis.
It is anticipated that these employees will be terminated by the Closing Date.
Occupancy charges increased 7.0% in 1993 compared with 1992 and 1.3% in
1992 from 1991. The increases in 1993 and 1992 reflect the impact of the asset
management acquisitions. The Chase Acquired Business includes leased space in
the building located at 770 Broadway and the leased premises of MF Service
Company. As of the Closing Date, the transfer of those premises will reduce
the occupancy expense of the Company by approximately $11 million.
Equipment costs decreased 0.3% in 1993 and 4.7% in 1992 due to reductions
in the rates being charged on leased computer equipment.
Other expenses in 1993 decreased 1.2% compared to 1992, while increasing
19.8% in 1992 compared to 1991. The 1993 decline is a result, in part, of
lower costs related to real estate acquired in debt restructurings.
As part of the Merger, Chase will acquire the Company's back office
operations. The Company will enter into the Services Agreement, pursuant to
which, after the Distribution, CMB will furnish necessary securities
processing, custodial, data processing and other services to the Company. The
initial term of the Services Agreement will be for five years beginning on the
Closing Date, with certain renewal options. In consideration of the services
provided to it under the Services Agreement, during the initial term, the
Company will pay Chase an annual base fee of $10 million, which is
significantly less than the Company's estimate of the annual cost of providing
such services to itself. See "Relationship with Chase".
H-52
<PAGE>
Operating expenses applicable to the Core Businesses and the Processing
Business for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
Years Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Core Businesses:
Salaries and Benefits.................................... $108,481 $ 91,355 $ 77,165
Net Occupancy............................................ 18,778 16,996 16,223
Other.................................................... 46,143 46,652 37,236
-------- -------- --------
Subtotal................................................. 173,402 155,003 130,624
-------- -------- --------
Processing Business:
Salaries and Benefits.................................... 61,855 58,021 50,801
Net Occupancy............................................ 9,360 8,792 9,289
Other.................................................... 38,915 29,152 29,067
-------- -------- --------
Subtotal................................................. 110,130 95,965 89,157
Corporate Overhead......................................... 31,988 38,564 35,156
-------- -------- --------
Total Operating Expenses......................... $315,520 $289,532 $254,937
======== ======== ========
</TABLE>
Operating expenses associated with the Core Businesses and Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and policies
have been developed and implemented with the objective of reflecting the
economics of the respective businesses. Direct costs are those expenses that
can be directly attributable to a specific business activity. Direct expenses
include actual salaries and benefits of the employees of the business, net
occupancy costs based upon actual space utilized and furniture and equipment
specifically employed by the business.
The Company has developed methodologies to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a
direct relationship between the level of business activity and the amount of
cost incurred. Such methodologies employ volume or percentage allocation bases
or the activity of other expense or balance sheet accounts. Indirect costs
include computer, securities clearing and bank operations transfer charges
which are allocated on the basis of volume statistics.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and
other general purpose corporate expenses.
Operating expenses for the Core Businesses as presented in the Pro Forma
Condensed Statement of Income for the year ended December 31, 1993 were $197.4
million compared with $205.4 million in the above table (Core Businesses
expenses of $173.4 million plus corporate overhead expenses of $32.0 million).
The difference between the amounts is a result of the Pro Forma Condensed
Financial Statements taking into account certain assumptions relating to the
reduction in the corporate staff, the Services Agreement between the Company
and Chase and the reduction in premises leased by the Company. See "Pro Forma
Condensed Financial Statements" and "Notes to Pro Forma Condensed Financial
Statements".
Income Taxes
The effective tax rates on income before income taxes and cumulative
effect of accounting changes for 1993, 1992 and 1991 were 41.8%, 38.0% and
35.7%, respectively. The increase in the 1993 effective tax rate is due to the
decline in tax-exempt income as a result of maturities and redemptions of
state and municipal bonds and the impact of the increase in the federal
corporate income tax rate that was retroactive to January 1, 1993.
H-53
<PAGE>
Financial Condition
Capital and Regulatory Ratios
The Company has maintained its strong capital position throughout the
first nine months of 1994. The ratio of Tier 1 capital at September 30, 1994
to period-end, risk-adjusted assets (as defined by the Board of Governors) was
14.19%, compared to 13.23% at September 30, 1993. The ratio of total capital
at September 30, 1994 to period-end, risk-adjusted assets was 15.51%. At
September 30, 1993, this ratio was 14.71%. The Tier 1 leverage ratio (Tier 1
capital as of the period end divided by quarterly (3 month) total average
assets) was to 5.70% and 5.11% at September 30, 1994 and 1993, respectively.
After the consummation of the Disposition, the Company expects that its
capital ratios will remain strong. On a pro forma basis as of September 30,
1994, the Company estimates that its ratio of Tier 1 capital to risk-adjusted
assets would have been 11.56%. Its ratio of total capital to risk-adjusted
assets would have been 12.64%. The Tier 1 leverage ratio would have amounted
to 6.36%. See "Pro Forma Condensed Financial Statements".
For the nine-month period ended September 30, 1994, 90,000 shares of
common stock were acquired under the Company's share repurchase program at an
average price of $50.81 per share. For the same period during 1993, 110,500
shares were repurchased at an average cost of $54.00 per share.
One of the principal purposes of the Company's common stock repurchase
program has been to provide a supply of common shares for issuance under the
Company's various common stock incentive and compensation plans. Such common
shares have been acquired through systematic purchases in the open market in
amounts deemed sufficient to satisfy the Company's immediate and near-term
(i.e., less than two years) obligations to issue common shares under its
benefit plans. During the first nine months of 1994, the Company issued
116,795 common shares under its various stock-based plans.
The adoption of a stock repurchase program by the Company following the
Distribution would be subject to (i) the approval of the Company Board, (ii)
maintaining regulatory ratios necessary to remain "well capitalized", (iii)
maintaining appropriate parent company liquidity and (iv) existing statutory
authority that permits repurchases of shares in an amount that does not exceed
10% of the Company's stockholders' equity at the beginning of the year.
Asset/Liability Management
The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between interest sensitive assets and interest sensitive
liabilities, and to manage the size and composition of the balance sheet so as
to maximize net interest income, while complying with bank regulatory agency
capital standards.
As part of its overall asset and liability management process, the
Company uses non-leveraged interest rate swaps and forward rate agreements
("FRAs") as hedges. Swaps are used to hedge the net yield earned on pools of
fixed rate residential real estate mortgage loans originated in the year of
the swap's inception. The following table provides details, as of September
30, 1994, of the notional amounts of swaps by maturity and the related average
interest rates paid and received. The Company is a fixed rate payor on all of
its swaps.
<TABLE>
Maturing
----------------------------------
Within 1 1 to 5
Year Years Total
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Fixed Pay Swaps............................................ $ 22,000 $ 45,875 $ 67,875
Average Rate Paid.......................................... 8.2949% 6.9952% 7.4165%
Average Rate Received*..................................... 4.9744% 4.9513% 4.9588%
- ---------------
* Represents the average variable rate that will be received by the Company
based upon the rate in effect at the latest variable rate reset date of each
interest rate swap.
</TABLE>
H-54
<PAGE>
Customer deposit balances associated with the Processing Business have
provided the Company with a stable, long-term source of funds that
historically has been used to finance fixed-rate loans and investments. In the
fourth quarter of 1994, the Company sold over $800 million of Treasury and
Agency Securities in anticipation of the closing of the Merger and the
resultant need to fund the deposit balances being transferred as part of the
Chase Acquired Business. The Company will retain most, if not all, of its
fixed rate loan portfolio. See "Recent Developments". As a result, the
Company's use of interest rate swaps as an asset/ liability management tool is
expected to increase, as a greater proportion of the Company's fixed rate
assets will be funded with short-term interest bearing liabilities. In
addition, the Company may issue term financing or sell loans to maintain an
appropriate matching of its asset/liability structure.
The Company is currently negotiating a new multi-year $35 million credit
facility which the Company expects will have terms and conditions at least as
favorable as UST's existing credit facility. The Company expects that the new
credit facility will be finalized prior to the Closing Date.
The impact of the Company's hedging activities upon net interest income
is detailed in the following table.
<TABLE>
Three-Month Periods Nine-Month Periods
Ended September 30, Ended September 30,
--------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
(Taxable Equivalent Basis; Dollars In Thousands)
<S> <C> <C> <C> <C>
Net Interest Income:
As Reported................................. $29,196 $32,952 $85,945 $92,979
Excluding Hedging Activities................ $29,484 $33,388 $88,812 $96,781
Net Yield on Interest Earning Assets:
As Reported................................. 3.47% 3.87% 3.51% 3.99%
Excluding Hedging Activities................ 3.51% 3.94% 3.62% 4.14%
</TABLE>
The preceding table presents the impact of the Company's hedging
activities on net interest income. The difference between the results "As
Reported" and "Excluding Hedging Activities" reflects the cost of utilizing
swaps to hedge interest rate risks and lock in a specified levels of return.
Securities Available for Sale
During the first nine months of 1994, the Company purchased $1,062.4
million of securities (primarily Treasury and Agency Securities ($936.5
million)) classified as available for sale.
The Company's portfolio of securities classified as available for sale is
principally comprised of the following: U.S. Treasury fixed rate obligations
with weighted average original maturities of one and one half years (68%);
Government National Mortgage Association ("GNMA") 15-year fixed rate
mortgage-backed securities ("Fixed Rate GNMAs"); and GNMA adjustable rate
mortgage-backed securities ("GNMA ARMs") (18%); obligations of states and
municipalities (5%) and variable rate collateralized mortgage obligations
backed by GNMAs ("CMOs") (5%). GNMAs are backed by the full faith and credit
of the U. S. Government.
The market value of securities available for sale exceeded their
amortized cost by $16.5 million at December 31, 1993. At September 30, 1994,
the amortized cost of securities available for sale exceeded their market
value by $8.9 million. The decrease in market value relative to amortized cost
reflected several factors. First, in the first quarter of 1994, high yielding
available for sale securities (mainly in Treasury Securities) were sold for a
$2.0 million dollar gain, and the proceeds from such sales, together with
maturities, calls and mandatory redemptions of securities of $258.6 million,
were reinvested (mainly in Treasury Securities) at then-lower prevailing
interest rates. Second, since the beginning of 1994, interest rates have
gradually increased.
In January 1994, the Company sold $41.9 million of securities available
for sale. There were no sales of securities for the three-month period ended
September 30, 1994.
H-55
<PAGE>
Securities Held to Maturity
During the first three months of 1994, the Company purchased $402.1
million of securities classified as held to maturity, primarily consisting of
Agency Securities ($375.3 million).
In excess of 93% of the Company's securities classified as held to
maturity consist of Fixed Rate GNMAs and GNMA ARMs. The Company acquired
$299.6 million of Fixed Rate GNMAs in 1994. At September 30, 1994, the
portfolio of Fixed Rate GNMAs had a duration of approximately 4.4 years.
Approximately 50% of the GNMA ARMs were acquired in 1992 and 50% in the first
three months of 1994. At September 30, 1994, the portfolio of GNMA ARMs had a
duration of approximately 1.3 years.
The market value of securities held to maturity at September 30, 1994 was
$425.0 million, which was $23.0 million less than their carrying amount. At
December 31, 1993, the market value of securities held to maturity was $87.1
million, which exceeded their carrying amount by $300,000. The decline in
market value reflects the increase in interest rates during the period
December 31, 1993 through September 30, 1994.
Impact of the Disposition on the Investment Portfolio
The Company anticipates that after the Disposition its securities
portfolio will be concentrated in shorter term Treasury Securities and
floating rate CMO's collateralized by GNMA mortgage pass-through securities. A
lesser amount will be invested in GNMA mortgage pass-through securities and
tax exempt state and municipal obligations. Tax exempt, state and municipal
securities are largely fixed-rate investments with an average life of
approximately 4.5 years and a duration of approximately 3.5 years. GNMA
securities are mostly 15 year original maturity securities and 30 year
original maturity securities with remaining maturity of about 20 years. The
average life of the GNMA portfolio is about 6 years and the duration is about
4 years.
The shorter term portfolio of Treasury Securities and floating rate CMO's
will be primarily used for liquidity. The GNMAs and state and municipal
obligations are intended to provide longer term returns with low credit risk.
Mortgage Securities and Prepayment Risk
At September 30, 1994, the Company held GNMA and CMO securities
("mortgage securities") having a carrying value of approximately $717 million
in its available for sale and held to maturity securities' portfolios. While
these mortgage securities, as well as the Company's residential real estate
mortgage loans ("mortgage loans"), are subject to prepayment risk, management
believed that these were appropriate investments for the Company.
Historically, relatively high levels of non-interest bearing deposits derived
from the Processing Business helped to mitigate the prepayment risk associated
with these holdings.
Impact of the Disposition on Liquidity
Historically, the Company has maintained strong liquidity at both the
parent and the operating subsidiaries. While the Disposition will have a
significant effect on capital resources and the overall asset and liability
structure, the Company believes that it will maintain sufficient liquidity at
each of its active subsidiaries.
In connection with the Disposition, USTNY will redeem its outstanding
8 1/2% Capital Notes Due 2001 (the "Capital Notes"). The funds required to
redeem the Capital Notes will be obtained through normal business operations.
The Company also will defease the $30 million balance of its 8% Notes due
1996. The funding for such defeasance will be provided by cash on hand,
dividends from subsidiaries, and financing from outside sources now under
negotiation. See "Special Factors".
The Pro Forma Condensed Statement of Condition reflects an increase of
$66.9 million of short-term borrowings as a result of the Disposition and
other adjustments. Approximately $42.2 million is due to the elimination of
the Capital Notes and the 8% Notes Due 1996. The remaining increase in
short-term borrowings is a result of an assumption that the Company initially
would maintain a level of investment securities equal to the carrying amount
of securities that were sold. The after-tax proceeds from the sale were
H-56
<PAGE>
$24.6 million less than the carrying amount of the investment securities which
were sold. The amount for this line item is set forth in note (d) to "Notes to
Pro Forma Condensed Financial Statements".
Customer deposit balances associated with the Processing Business have
provided the Company with a stable, long-term source of funds that
historically has been used to finance fixed-rate loans and investments. In the
fourth quarter of 1994, the Company sold over $800 million of Treasury and
Agency Securities in anticipation of the closing of the Merger and the
resultant need to fund the deposit balances being transferred as part of the
Chase Acquired Business.
Ongoing liquidity after the Disposition will be supplied by approximately
$1.9 billion of interest and non-interest bearing customer deposits associated
with the Core Businesses. Such customer deposits plus money market borrowings
in excess of the amounts needed to finance the loan portfolio will be invested
primarily in short-term Treasury Securities and floating rate investments.
Interest Rate Sensitivity
Interest rate risk arises from differences in the timing of repricing
assets and liabilities. One measure of interest rate risk is the difference in
asset and liability repricing on a cumulative basis within a specified time
frame. The following table provides the components of the Company's interest
rate sensitivity gaps at September 30, 1994. Gap analysis has inherent
limitations as an analytical tool because it only measures the Company's
exposure at a single point in time. Exposure to interest rates is constantly
changing as a result of the Company's ongoing business and its management
initiatives. Accordingly, the gap table cannot be used to predict the
Company's interest sensitivity position after the Disposition. Certain actions
that the Company has taken in response to the transaction have been described
in "-- Impact of the Disposition on Liquidity" section.
H-57
<PAGE>
As set forth in the following table, as of September 30, 1994, the
Company had more liabilities repricing than assets (liability sensitive)
through one year. In general, when an enterprise is liability sensitive, its
net interest income will improve in a declining interest rate environment and
will decline in a rising interest rate environment. Conversely, an asset
sensitive enterprise, which the Company is in the 1 - 5 year time period, will
realize a benefit in net interest income if rates are rising and will have
lower net interest income in a falling rate environment.
<TABLE>
0-3 4-6 7-12 1-5 Over
Months Months Months Years 5 Years Total
---------- --------- --------- ---------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Assets
Interest Bearing Deposits with
Banks.............................. $ 74,855 -- -- -- -- $ 74,885
Securities Available for Sale and
Held to Maturity................... 406,389 145,139 234,504 756,599 189,259 1,731,890
Federal Funds Sold and Securities
Purchased Under Agreements to
Resell............................. 6,000 -- -- -- -- 6,000
Loans, Net of Allowance for Credit
Losses............................. 955,188 30,089 55,402 299,556 214,956 1,555,191
Cash and Other Non-Interest Earning
Assets............................. 421,298 26,299 28,679 69,447 104,842 650,565
---------- --------- --------- ---------- --------- ----------
Total Assets......................... 1,863,760 201,527 318,585 1,125,602 509,057 4,018,531
========== ========== ========== ========== ========== ==========
Liabilities and Stockholders' Equity
Non-Interest Bearing Deposits........ 190,948 31,251 62,501 375,748 450,500 1,110,948
Interest Bearing Deposits............ 1,246,101 7,414 11,331 7,415 -- 1,272,261
Federal Funds Purchased, Securities
Sold Under Agreements to Repurchase
and Other Borrowings............... 1,187,958 -- -- -- -- 1,187,958
Accounts Payable and Accrued
Liabilities........................ 34,790 25,450 23,591 29,059 32,263 145,153
Long-Term Debt....................... 1,650 2,737 1,000 52,984 4,203 62,574
Stockholders' Equity................. -- -- -- -- 239,637 239,637
---------- --------- --------- ---------- --------- ----------
Total Liabilities and Stockholders'
Equity............................. 2,661,447 66,852 98,423 465,206 726,603 4,018,531
---------- --------- --------- ---------- --------- ----------
Asset/(Liability) Sensitivity Gap.... (797,687) 134,675 220,162 660,396 (217,546) --
---------- --------- --------- ---------- --------- ----------
Interest Rate Swaps.................. 61,750 (12,125) (3,750) (45,875) -- --
---------- --------- --------- ---------- --------- ----------
Interest Rate Sensitivity Gap........ (735,937) 122,550 216,412 614,521 (217,546) --
---------- --------- --------- ---------- --------- ----------
Cumulative Interest Rate Sensitivity
Gap................................ $ (735,937) $(613,387) $(396,975) $ 217,546 $ -- $ --
========== ========== ========== ========== ========== ==========
</TABLE>
Following the Disposition, the Company will no longer have access to
non-interest bearing deposits derived from the Processing Business and has
taken actions to reduce its exposure to fixed-rate investments through its
sale of held to maturity securities portfolio and to rebalance its
asset/liability mix through the sale of certain available for sale securities.
See "-- Asset/Liability Management".
The Disposition will have no direct impact on the Company's private
banking loan portfolio. Slightly less than 50 percent of the current loan
portfolio is made up of fixed-rate mortgages. The fixed-rate mortgage
portfolio has an average maturity of about 5 years and a duration of about 3.5
years. While it is anticipated that the portion of fixed-rate loans will
remain about constant, changes in the level and direction of interest rates
will cause prepayments of existing loans and origination of new fixed-rate
loans to vary. Consequently, the proportion of fixed-rate loans may vary from
period to period.
H-58
<PAGE>
Asset Quality
The Company's loan portfolio is comprised primarily of loans to private
banking customers. Average loans increased $222 million, or 19.8%, to $1.3
billion in the third quarter of 1994, from $1.1 billion in the third quarter
of 1993. Residential real estate mortgages accounted for approximately 70% of
the increase in the portfolio.
An analysis of the allowance for credit losses follows.
<TABLE>
Three-Month Periods Nine-Month Periods
Ended September 30, Ended September 30,
--------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Balance, Beginning of Period.................. $14,017 $14,052 $13,393 $11,676
Provision Charged to Income................... 500 1,000 1,500 3,500
Recoveries.................................... 308 16 742 1,513
Charge-offs................................... (398) (801) (1,208) (2,422)
------- ------- ------- -------
Net (Charge Offs)............................. (90) (785) (466) (909)
------- ------- ------- -------
Balance, End of Period........................ $14,427 $14,267 $14,427 $14,267
======= ======= ======= =======
</TABLE>
The provision for credit losses in the third quarter of 1994 was
$500,000, compared to $1.0 million in the third quarter of 1993. As a
percentage of average loans for the quarter, net charge-offs for the third
quarter of 1994, on an annualized basis, were 3 basis points, compared to 28
basis points for the third quarter of 1993.
The allowance for credit losses at September 30, 1994, was $14.4 million,
or 1.07% of average loans outstanding for the quarter. The allowance for
credit losses was $13.4 million, or 1.13% of average loans outstanding for the
quarter ended December 31, 1993, and $14.3 million, or 1.27% of average loans
outstanding for the quarter ended September 30, 1993.
The allowance for credit losses as a percentage of nonperforming loans
was 268.71% at September 30, 1994, compared to 223.03% at December 31, 1993,
and 286.60% at September 30, 1993. The ratio of nonperforming assets to
average loans and real estate owned for the quarter was 1.27% at September 30,
1994, compared to 1.47% at December 31, 1993 and 1.51% at September 30, 1993.
The improvement in these ratios between December 31, 1993 and September 30,
1994, reflects a net addition to the allowance for credit losses since
December 31, 1993 as the provision has exceeded net loan charge-offs.
Nonperforming assets, which include non-accrual and restructured loans
and real estate acquired in debt restructurings, are as follows:
<TABLE>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
(Dollars In Millions)
<S> <C> <C> <C>
Non-Accrual and Restructured Loans....................... $ 5.4 $ 6.0 $ 5.0
Real Estate Owned Excluding Premises..................... 11.9 11.5 12.1
------ ------ ------
Total Nonperforming Assets............................... $17.3 $ 17.5 $17.1
========== ========== ==========
</TABLE>
After the consummation of the Disposition, the Company plans on
maintaining risk-adjusted capital ratios in excess of the "well capitalized"
regulatory requirement. The Company also plans to maintain a high quality loan
and investment portfolio. It is not anticipated that the Disposition will
affect the quality of the loan portfolio. In addition, the Company anticipates
that the majority of the investment portfolio will be made up of Treasury and
Agency Securities.
H-59
<PAGE>
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan", ("FAS 114")," issued in May 1993, and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures", ("FAS 118")",
an amendment of FAS 114, issued in October 1994, address the accounting by
creditors for impairment of certain loans. FAS 114 requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. FAS 118 amends the disclosure requirements
of FAS 114 to require information about the recorded investment in certain
impaired loans and amends the income recognition criteria in FAS 114. FAS 114
and FAS 118 are effective for fiscal years beginning after December 15, 1994.
Based upon a preliminary review of the present loan portfolio, the Company
does not believe that the adoption of FAS 114 and FAS 118 will have a
significant impact on the financial condition or results of operations of the
Company.
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments",
("FAS 119"), issued in October 1994, requires new disclosures about derivative
financial instruments and amends certain existing disclosure requirements. FAS
119 is effective for fiscal years ending after December 15, 1994. Since FAS
119 imposes only a disclosure requirement, its adoption will not have any
effect on its present financial condition or its results of operations.
H-60
<PAGE>
RECENT DEVELOPMENTS
The summary financial data set forth below is derived from the audited
financial statements of the Company for the fiscal year ended December 31,
1993, and the unaudited financial statements of the Company for the
three-month periods ended December 31, 1994 and 1993, and for the twelve-month
period ended December 31, 1994. Actual results for the year ended December 31,
1994, are subject to the completion by the Company of its financial statements
and accompanying footnotes and the audit of such financial information by its
independent accountants. See "Pro Forma Condensed Financial Statements",
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
Three Months Ended Year Ended December
December 31, 31,
------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(Dollars in Millions, Except Per Share
Amounts)
<S> <C> <C> <C> <C>
Consolidated Condensed Statement of Income:
Net Interest Income....................................... $ 26 $ 28 $ 108 $ 116
Provision for Credit Losses............................... 1 1 2 4
------ ------ ------ ------
Net Interest Income After Provision for Credit Losses..... 25 27 106 112
Other Operating Income.................................... 41 76 270 276
Other Operating Expenses.................................. 95 88 342 315
------ ------ ------ ------
Income (Loss) Before Taxes................................ (29) 15 34 73
------ ------ ------ ------
Net Income (Loss)......................................... $ (16) $ 9 $ 21 $ 42
====== ====== ====== ======
Per Common Share:
Fully diluted............................................. $(1.65) $ 0.92 $ 2.09 $ 4.25
====== ====== ====== ======
Cash Dividends Declared................................... $ 0.50 $ 0.47 $ 2.00 $ 1.88
Consolidated Condensed Statement of Condition:
Total Assets.............................................. $3,223 $3,186
Total Deposits............................................ 2,440 2,487
Long-Term Debt............................................ 61 65
Total Stockholders' Equity................................ 223 229
Earnings Ratios:
Return on Average Total Assets............................ (1.60)% 0.96% 0.53% 1.11%
Return on Average Total Stockholders' Equity.............. (27.3)% 17.1% 9.2% 20.5%
Capital Ratios:
As a Percentage of Risk Adjusted Period End Total Assets:
Tier 1 Capital.......................................... 13.52% 14.08%
Total Capital........................................... 14.79% 15.47%
Tier 1 Leverage........................................... 5.68% 5.60%
</TABLE>
Results of Operations
On January 19, 1995, the Company reported a net loss of $15.5 million for
the fourth quarter of 1994, compared to net income of $9.1 million for the
fourth quarter of 1993. On a fully diluted per share basis, the net loss for
the fourth quarter of 1994 was $1.65, compared to net income of $0.92 for the
fourth quarter of 1993. The results of the fourth quarter of 1994 include
$50.2 million ($27.9 million after taxes) of charges associated with the
pending Disposition. Excluding the aforementioned charges, net income for the
fourth quarter of 1994 would have been $12.4, million or $1.22 on a fully
diluted per share basis.
For the year 1994, net income was $21.0 million, a decrease of 50.4% from
$42.3 million of net income for the year 1993. Fully diluted net income per
share for 1994 was $2.09, compared with $4.25 for in 1993, a decrease of
50.8%. Excluding the charges associated with the Disposition, net income for
1994 would have been $48.9 million, or $4.83 on a fully diluted per share
basis.
H-61
<PAGE>
Fiduciary and Other Fees
Fiduciary and other fees increased 7.5% to $75.6 million in the fourth
quarter of 1994 from $70.3 million in the fourth quarter of 1993. Fiduciary
and other fees related to the Processing Business increased 7.2% to $25.8
million in the fourth quarter of 1994 from $24.0 million in the fourth quarter
of 1993. Fiduciary and other fees related to the Core Businesses increased
7.6% to $49.8 million in the fourth quarter of 1994 from $46.3 million in the
fourth quarter of 1993.
For the year 1994, fiduciary and other fees were $295.6 million, an
increase of 11.9% over fiduciary and other fees of $264.1 million in 1993.
Fiduciary and other fees related to the Processing Business increased 10.5% to
$102.7 in 1994 from $93.0 million in 1993. Fiduciary and other fees related to
the Core Businesses increased 12.7% to $192.9 million in 1994 from $171.1
million in 1993. Excluding fiduciary and other fees attributable to Pacific
Northwest, acquired on July 7, 1993, fiduciary and other fees related to the
Core Businesses would have increased 10.5% for the year 1994.
Assets Under Management
Total assets under management increased 2.4% to $33.0 billion at December
31, 1994, from $32.2 billion at December 31, 1993. Such assets include $1.9
billion of funds under management for clients of the Processing Business.
Assets held in custody for personal clients increased 4.7% to $8.2 billion at
December 31, 1994, from $7.9 billion at December 31, 1993. Corporate trust
assets under trusteeship and agency relationships, including assets
administered by the Company's bond immobilization business, increased 4.8% to
$159.6 billion at December 31, 1994, from $152.2 billion at December 31, 1993.
Total assets under administration for the Processing Business increased 11.2%
to $223.4 billion at December 31, 1994, from $200.9 billion at December 31,
1993.
Securities Gains (Losses) and Net Interest Income
Under the Merger Agreement, the assets of the Chase Acquired Business
(which includes the Processing Business) will include readily available funds
equal to the liabilities (including deposit liabilities) associated with the
Chase Acquired Business. The Chase Acquired Business deposits provided a
long-term source of funds to the Company which financed a portion of the
Company's long- and medium-term interest earning assets. In anticipation of
consummating the Disposition and to substantially effect a rebalancing of the
Company's overall asset and liability structure, in the fourth quarter of
1994, the Company sold approximately $800 million of Treasury and Agency
Securities. The proceeds from such sales were invested in short-term
investment securities and used to reduce short-term borrowings. Net losses
from the sale of securities in the fourth quarter of 1994 totaled $44.2
million ($23.3 million after taxes), compared to a net gain of $3.0 million
from the sale of securities in the fourth quarter of 1993. For the year 1994,
net losses from the sale of securities totalled $42.1 million, compared to a
net gain from the sale of securities of $3.0 million for the year 1993.
Net interest income, on a taxable equivalent basis, was $26.8 million in
the fourth quarter of 1994, a decrease of 7.7% from $29.1 million in the
fourth quarter of 1993. Net interest income in 1994, on a taxable equivalent
basis, was $112.8 million, a decrease of 7.6% from $122.1 million in 1993. The
principal reason for the decline of net interest income during the fourth
quarter of 1994 and the year 1994 was the reduction ($283 million for the
fourth quarter and $187 million for the year) in the average of net
non-interest bearing deposit balances.
The average net non-interest bearing deposit balances of the Processing
Business declined 28.8% to $602 million in the fourth quarter of 1994,
compared to $845 million in the fourth quarter of 1993. The average volume of
net non-interest bearing deposit balances of the Processing Business in 1994
were $776 million, a 21.1% reduction from $983 million in 1993. Replacing such
net non-interest bearing deposit balances with short-term borrowings caused
the Company's net interest income to decline by $3.2 million ($1.7 million
after taxes or $0.18 per fully diluted share) in the fourth quarter of 1994
and $9.0 million ($4.8 million after taxes or $0.47 per fully diluted share)
in 1994.
H-62
<PAGE>
The net yield on interest-earning assets was 3.43% in the fourth quarter
of 1994 and 3.49% in the year 1994, compared to 3.86% and 3.95% in the
corresponding 1993 periods. The decline in the net yield reflects the lower
level of net non-interest bearing deposit balances and the impact of the
reduction in the investment securities portfolio's maturity structure.
Other Income
Other income was $9.1 million for the fourth quarter of 1994, compared to
$2.4 million for the fourth quarter of 1993, an increase of 282.3%. Other
income was $16.7 million in 1994, compared to and $8.9 million in 1993, an
increase of 89.0%. This increase was attributable primarily to the sale by the
Company of its partnership interest in Financial Technologies International
L.P.; a pre-tax gain of $6.4 million was recorded in the fourth quarter of
1994 ($3.4 million after taxes or $0.36 per fully diluted share for the fourth
quarter and $0.33 per fully diluted share for the year 1994) in connection
with this transaction.
Total Revenues
Total revenues (defined as fiduciary and other fees and net interest
income after provision for credit losses, adjusted for securities losses
incurred in anticipation of the Disposition) were $109.9 million for the
fourth quarter of 1994, compared with $102.9 million for the fourth quarter of
1993. Total revenues were $420.5 million for the year 1994, compared with
$388.2 million for the year 1993. Core Businesses total revenues were $73.5
million for the fourth quarter of 1994, an increase of 7.6% over $68.3 million
of total revenues in the fourth quarter of 1993. Core Businesses total
revenues for the year 1994 were $270.2 million, an increase of 14.1% over 1993
Core Businesses total revenues of $236.8 million. Total revenues attributable
to the Processing Business were $36.4 million for the fourth quarter of 1994,
compared with $34.6 million for the fourth quarter of 1993. Total revenues
attributable to the Processing Business in 1994 were $150.3 million compared
with $151.4 million in 1993.
Operating Expenses
Non-interest operating expenses were $94.3 million in the fourth quarter
of 1994, 7.5% higher than the $87.7 million in the fourth quarter of 1993.
Non-interest operating expenses were $341.9 million in the year 1994, an
increase of 8.4% from $315.5 million in the year 1993. The Company incurred
$6.0 million ($4.6 million after-taxes) in professional fees and other related
expenses in the fourth quarter of 1994 in connection with the proposed
Disposition. Salaries and employee benefit expenses, including sales
incentives and commissions, increased $4.3 million, or 8.6%, in the fourth
quarter of 1994, and $18.3 million, or 9.7%, in the year 1994, reflecting
increases in the size of the asset management and mutual funds services
businesses' professional staffs and related employee benefit expense. In
addition, the expense accrued for the Company's stock-based incentive award
plans increased by approximately $500,000 after taxes, or $0.05 per share, in
the fourth quarter of 1994 as a result of the higher price of Company Common
Stock in the fourth quarter of 1994 following the Company's announcement of
the Disposition. For the fourth quarter of 1994, the ratio of total operating
expenses to taxable equivalent total revenues, as deferred ("efficiency
ratio"), was 79.6%, compared to 84.1% for the fourth quarter of 1993. For the
year 1994, the comparable efficiency ratio was 79.0%, versus 80.1% for the
year 1993. The calculation of the 1994 efficiency ratios excludes the impact
of the pending Disposition on operating income and operating expenses.
Core Businesses operating expenses were $51.7 million during the fourth
quarter of 1994, compared with $49.8 million during the comparable fourth
quarter of 1993. The operating expenses attributable to the Processing
Business were $27.8 million for the fourth quarter of 1994, compared with
$32.3 million for the fourth quarter of 1993. Corporate overhead and other
unallocated expenses were $14.9 million and $5.6 million for the fourth
quarters of 1994 and 1993, respectively.
Core Businesses operating expenses were $194.1 million during 1994,
compared with $173.4 million during 1993. The operating expenses attributable
to the Processing Business were $113.6 million for 1994, compared with $110.1
million during 1993. Corporate overhead and other unallocated expenses were
$34.2 million and $32.0 million for 1994 and 1993, respectively.
H-63
<PAGE>
Income Tax Expense
As a result of the pre-tax loss of $28.6 million in the fourth quarter of
1994, the Company recorded a tax benefit of $13.0 million (or 45.6% effective
tax rate), compared to a tax provision of $6.0 million (or 39.8% effective tax
rate) for the fourth quarter of 1993. The effective tax rate was 39.0% for the
year 1994, compared to 41.8% for the year 1993. The decline in the effective
tax rate from 1993 to 1994 was due to lower state and local income taxes.
Asset Quality and Provision For Credit Losses
Average loans increased $223 million, or 18.9%, to $1.4 billion in the
fourth quarter of 1994, from $1.2 billion in the fourth quarter of 1993.
Residential real estate mortgages accounted for more than 70% of the increase
in the loan portfolio. Average loans increased $212.2 million, or 19.4%, to
$1.3 billion in 1994, from $1.1 billion in 1993.
The provision for credit losses was $500,000 in the fourth quarters of
both 1994 and 1993. For the year, the provision for credit losses was $2.0
million, compared to $4.0 million in 1993.
In the fourth quarter of 1994, net loan charge-offs were $228,000,
compared to net loan charge-offs of $1.4 million in the fourth quarter of
1993. As a percentage of total average loans for the quarter, net loan
charge-offs on an annualized basis were six basis points in the fourth quarter
of 1994, compared to 46 basis points in the fourth quarter of 1993. For the
year 1994, net loan charge-offs were $694,000, compared to $2.3 million in
1993. As a percentage of total average loans for the year, net loan
charge-offs were five basis points for 1994, compared to 21 basis points for
1993.
The allowance for credit losses at December 31, 1994, was $14.7 million,
or 1.12% of total average loans outstanding for the year, compared with an
allowance for credit losses at December 31, 1993, of $13.4 million, or 1.22%
of total average loans outstanding for 1993. The allowance for credit losses
as a percentage of nonperforming loans amounted to 230.72% at December 31,
1994, compared to 223.03% at December 31, 1993.
Nonperforming assets were $18.7 million for the year 1994, compared to
$17.5 million for the year 1993. As a percentage of period-end total assets,
total nonperforming assets amounted to 58 basis points for the year 1994,
compared to 55 basis points for the year 1993.
Capital
The Company's Tier 1 Capital ratio was 13.52% at December 31, 1994,
compared to 14.08% at December 31, 1993. The Total Capital ratio was 14.79% at
December 31, 1994, compared to 15.47% at December 31, 1993. The Leverage ratio
was 5.68% at December 31, 1994, compared to 5.60% at December 31, 1993.
H-64
<PAGE>
MANAGEMENT
Directors
Following the Distribution, the Company Board will consist of 20 persons,
each of whom will have been elected for a term expiring at the annual meeting
of the Company's stockholders indicated below, and until his or her successor
shall have been elected and qualified. The following table sets forth
information concerning the individuals who will serve as directors of the
Company. These individuals comprise the current UST Board, other than Donald
M. Roberts and Frederick S. Wonham, current executive officers and directors
of UST who will retire as of, and will not continue to serve as directors
following, the Distribution.
<TABLE>
Term Expires at
Name Age Annual Meeting in
------------------------------------------------------ --- -----------------
<S> <C> <C>
Eleanor Baum.......................................... 54 1996
Samuel C. Butler...................................... 64 1998
Peter O. Crisp........................................ 62 1997
Daniel P. Davison..................................... 70 1997
Philippe de Montebello................................ 58 1996
Paul W. Douglas....................................... 68 1998
Edwin D. Etherington.................................. 70 1996
Antonia M. Grumbach................................... 51 1997
Frederic C. Hamilton.................................. 67 1997
Peter L. Malkin....................................... 61 1997
Jeffrey S. Maurer..................................... 47 1997
Orson D. Munn......................................... 70 1998
H. Marshall Schwarz................................... 58 1998
Philip L. Smith....................................... 61 1998
John Hoyt Stookey..................................... 65 1996
Frederick B. Taylor................................... 53 1996
Richard F. Tucker..................................... 68 1997
Carroll L. Wainwright, Jr. ........................... 69 1998
Robert N. Wilson...................................... 54 1996
Ruth A. Wooden........................................ 48 1998
</TABLE>
Eleanor Baum became dean of engineering at Cooper Union in 1987. Prior to
that, she was dean at Pratt Institute in Brooklyn and worked as an electrical
engineer in the aerospace industry. Dr. Baum is also a director of Allegheny
Power Systems and Avnet, Inc. She is president-elect of the American Society
for Engineering Education and serves on the Board of Governors of the New York
Academy of Sciences. She is a trustee of the Accreditation Board for
Engineering & Technology, is a commissioner of the Engineering Workforce
Commission, and an advisory board member at Duke University, Rice University
and the U.S. Merchant Marine Academy. She is executive director of the Cooper
Union Research Foundation and a fellow of the Institute of Electrical &
Electronic Engineers.
Samuel C. Butler joined the law firm of Cravath, Swaine & Moore in 1956
and was elected a partner of the firm in 1960. He is also a director of
Ashland Oil, Inc., Millipore Corporation and GEICO Corporation. Mr. Butler is
a trustee of the New York Public Library and of the Culver Educational
Foundation.
Peter O. Crisp has been general partner of Venrock Associates since 1969.
He is also a director of Apple Computer, Inc., American Superconductor
Corporation, Evans & Sutherland Computer Corp., Long Island Lighting Company,
Inc., Thermedics Inc., Thermo Electron Corp., Thermo Power Corporation and
ThermoTrex Corp. Mr. Crisp serves as a member of the Board of Managers of
Memorial Sloan-Kettering Cancer Center, Memorial Hospital for Cancer and
Allied Diseases and Sloan-Kettering Institute for Cancer Research. He is a
trustee of North Shore University Hospital and of the Teagle Foundation.
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<PAGE>
Daniel P. Davison was chairman of the board of Christie, Manson & Woods
International, Inc. from February 1990 to January 1, 1994. He served as
president of UST and USTNY from the spring of 1979 until June 1, 1986, as
chief executive officer from January 1, 1981 through January 1990 and as
chairman of the board from February 1, 1982 until his retirement in February
1990. Prior to joining UST, he was associated with Morgan Guaranty Trust
Company for 23 years, serving as corporate secretary, general manager of its
London office and, in his final position, as executive vice president in
charge of the National Bank Division. Mr. Davison is also a director of The
Atlantic Companies, Burlington Northern, Inc., Christies International, plc
and Prime Property Inc. He is a trustee and treasurer of the Winston Churchill
Foundation of the United States, Ltd. and of the Florence Gould Foundation.
Mr. Davison is also vice chairman and governor of The Nature Conservancy and
trustee of the Waterfowl Foundation.
Philippe de Montebello has been associated with the Metropolitan Museum
of Art since 1963, serving as associate curator for European paintings from
1963 to 1969, vice director for curatorial and educational
affairs from 1974 to 1977 and as director since 1978. In the interim of his
duties at the Metropolitan, Mr. de Montebello served as director of the Museum
of Fine Arts in Houston from 1969 to 1974. He is a member of the Advisory
Board of the Skowhegan School of Painting and Sculpture and the Columbia
University Advisory Council-Departments of Art History and Archaeology. Mr. de
Montebello is a trustee of the New York University Institute of Fine Arts and
the American Federation of Arts.
Paul W. Douglas retired as chairman of the board and chief executive
officer of The Pittston Company in September 1991. Prior to joining Pittston
in January 1984, he had been associated with Freeport-McMoRan Inc. following
the merger of Freeport Minerals Company and McMoRan Oil and Gas Company in
April 1981. Formerly, he was director of the internal finance section of the
ECA Mission to France. Mr. Douglas is also a director of Holmes Protection
Group, Inc., MacMillan Bloedel Limited of Vancouver, B.C., New York Life
Insurance Company, Phelps Dodge Corporation, Philip Morris Companies, Inc. and
South American Gold and Copper Co. He is a member of The Council on Foreign
Relations, Inc. and a trustee of The International Center for the Disabled and
of St. Luke's-Roosevelt Hospital.
Edwin D. Etherington was president and chief executive officer of the
American Stock Exchange from 1962 to 1966 and president of Wesleyan University
from 1966 to 1970. Earlier, after practicing law in Washington, D.C. and New
York City, he was vice president of the New York Stock Exchange and,
subsequently, a general partner of Pershing & Co. Mr. Etherington was
president (1971) and chairman (1972) of the National Center for Voluntary
Action and for two years was chairman of the National Advertising Review
Board. He is a director of Automatic Data Processing, Inc. and a trustee of
The Schumann Foundation. He also serves as honorary chairman of the Lymes'
Youth Service Bureau and of the Hobe Sound Child Care Center.
Antonia M. Grumbach joined the law firm of Patterson, Belknap, Webb &
Tyler in 1971 and became a partner of the firm in 1979. She is currently
serving as managing partner of the firm. She is vice chairman of the board of
trustees of Teachers College-Columbia University, and a trustee of Milton
Academy, the CUNY Graduate Center Foundation, the William T. Grant Foundation
and The Henfield Foundation. Ms. Grumbach also served as an initial member of
the Board of Advisors of the New York University program on philanthropy and
the law.
Frederic C. Hamilton serves as chairman of the board, president and chief
executive officer of Hamilton Oil Company, Inc., chairman of the board of BHP
Petroleum, and chairman of the board of Tejas Gas Corporation. He is also a
director of the American Petroleum Institute and a member of the National
Petroleum Council. Mr. Hamilton is chairman of the Denver Art Museum
Foundation and of the Denver Art Museum, and a trustee of the Boys' Club
Foundation and the Boy Scouts of America Denver Area Council.
Peter L. Malkin joined the predecessor law firm of Wien, Malkin & Bettex
in 1958 and became a partner in the firm in 1962. He is also chairman of W & M
Properties, Inc. and is a general partner in the ownership of several New York
City buildings, including the Empire State Building, the Graybar Building, the
Lincoln Building, 1185 Avenue of the Americas, and One Penn Plaza. Mr. Malkin
is founding chairman of the Grand Central Partnership and of the 34th Street
Partnership, a director of the New York City Chamber of Commerce & Industry, a
member of the New York City Partnership, a member of the Board of Overseers of
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Harvard College and a director and member of the Executive Committee of
Lincoln Center for the Performing Arts.
Jeffrey S. Maurer joined USTNY in 1970 and was made manager of the Asset
Management and Private Banking Group in 1988. He was elected senior vice
president in November 1980, executive vice president in May 1986 and president
effective February 1990, and was designated chief operating officer in
December of 1994. Mr. Maurer is a trustee of Alfred University, a director and
treasurer of The Children's Health Fund, a director of The Hebrew Home for the
Aged, a member of the Advisory Board of The Salvation Army of Greater New York
and chairman of the Commerce and Industry Division of the Greater New York
Israel Bond Campaign.
Orson D. Munn was senior vice president and chief investment officer of
Madison Fund, Inc. from May 1981 through February 1983 and was president of
Orson Munn, Inc. from February 1983 until the organization of Munn, Bernhard &
Associates, Inc. in November 1990. Previously, he was president of Piedmont
Advisory Corporation and, upon its merger in 1980 with Lexington Management
Corporation, performed the duties of vice chairman and chief investment
officer. Earlier, Mr. Munn was associated with Wood Walker & Co. for 20 years,
serving as chief executive officer of the company from 1972 to 1974. Mr. Munn
is a trustee of the Waterfowl Research Foundation and is a former member of
the Financial Advisory Committee of the Garden Club of America, a former
trustee of the Village of Southampton and a former director of numerous
charities.
H. Marshall Schwarz joined USTNY in 1967 after a seven-year association
with Morgan Stanley & Co. In 1972, he was elected a senior vice president and
head of the Banking Division. He was elected executive vice president and
chief operating officer of USTNY's Bank Group in 1977 and chief operating
officer of the Asset Management Group in 1979. Mr. Schwarz served as president
of UST and USTNY from June 1986 through January 1990 and became chairman and
chief executive officer effective February 1, 1990. He is also a director of
Atlantic Mutual Companies and Bowne & Co., Inc. Mr. Schwarz is chairman of the
board of the American Red Cross in Greater New York and a director of the
United Way of New York City. He is a trustee of Teachers College-Columbia
University, Milton Academy, the Camille and Henry Dreyfus Foundation, Inc. and
The Boys' Club of New York.
Philip L. Smith has been chairman of the board and director of the Golden
Cat Corporation since November 1990. He was chairman of the board, president
and chief executive officer of The Pillsbury Company from August 1988 through
January 1989. Formerly, he had been associated with General Foods Corporation
for over 20 years, serving in his final position as chairman of General Foods
and director of Philip Morris Companies, Inc. Mr. Smith is also a director of
Whirlpool Corporation and Ecolab Corporation.
John Hoyt Stookey served as president of Quantum Chemical from 1975 to
1993 when Quantum was acquired by Hanson Industries, Inc. He continues as
chairman of the board of Quantum, a position he has held since 1986. As
Chairman of Quantum, Mr. Stookey served from 1989 to 1993 as an executive
officer of Petrolane Incorporated, Petrolane Finance Corp. and QJV Corp.,
affiliates of Quantum, which companies were reorganized on July 15, 1993 under
the U.S. Bankruptcy Code. Prior to joining Quantum, Mr. Stookey was president
of Wallace Clark Incorporated from 1969 to 1975 and served as the U.S.
Representative to both private and public banks in Mexico. He is also a
director of Cypress AMAX Minerals Co., ACX Technologies and Chesapeake
Corporation. Mr. Stookey is the founder and president of The Berkshire Choral
Institute and of Landmark Volunteers, and trustee of the Glimmerglass Opera,
Berkshire School, The Clark Foundation and The Robert Sterling Clark
Foundation.
Frederick B. Taylor joined USTNY in 1966. In 1980, he was elected a
senior vice president and, in 1986, he was elected an executive vice president
of UST and chairman, Investment Policy of USTNY. Mr. Taylor was elected vice
chairman and chief investment officer effective February 1990. He is a member
of the New York Society of Security Analysts and the Association for
Investment Management and Research. Mr. Taylor serves on the board of
counselors of White Plains Hospital and on the senior advisory board of the
New York Chapter of the Arthritis Foundation.
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<PAGE>
Richard F. Tucker joined Mobil Corporation in 1961 and retired as vice
chairman in May 1991. He was a director of Mobil from 1971, and president and
chief operating officer of Mobil Oil Corporation from 1986 until his
retirement. Mr. Tucker is also a director of The Perkin-Elmer Corporation. He
is trustee emeritus of Cornell University and a life member of the Board of
Overseers of Cornell Medical College. He is also a trustee of the Aldrich
Museum of Contemporary Art, The Teagle Foundation and the Norwalk Hospital.
Mr. Tucker is a member of the National Academy of Engineering, The Council on
Foreign Relations, Inc. and the Woods Hole Oceanographic Institution.
Carroll L. Wainwright, Jr. joined the law firm of Milbank, Tweed, Hadley
& McCloy in 1952. After serving as assistant counsel to the Governor of New
York from 1959 through 1960, he returned to the firm, becoming a partner in
1963, a senior partner in 1986 and a consulting partner in 1991. Mr.
Wainwright is a trustee of the American Museum of Natural History, trustee and
vice chairman of The Cooper Union for the Advancement of Science and Art and
trustee and former president of The Boys' Club of New York. He is also an
adjunct professor at Washington and Lee University Law School, a trustee of
the Edward John Noble Foundation, and member of the Distribution Committee of
The New York Community Trust.
Robert N. Wilson joined Johnson & Johnson in 1964. He was appointed to
the Executive Committee in 1983 and was elected to the board of directors in
1986. Mr. Wilson has been vice chairman of the board of directors of Johnson &
Johnson since 1989. He is a member of the Board of Directors of the
Pharmaceutical Research and Manufacturers Association, of the Alliance for
Aging Research and The Georgetown College Foundation, Inc. He also serves as a
trustee of the Museum of American Folk Art and is a member of the Trilateral
Commission. He is a director of The James Breck Foundation in London, England.
Ruth A. Wooden became president and chief executive officer of The
Advertising Council in August 1987. Prior to joining The Advertising Council,
she was employed with NW Ayer, Inc. for eleven years. Ms. Wooden serves as a
trustee of The Edna McConnell Clark Foundation and of St. Luke's Roosevelt
Hospital Center. She is vice chair of CARE, USA and an advisor to the Columbia
Health Sciences Advisory Council and the Columbia University School of Public
Health Advisory Council.
Committees of the Board of Directors
The Company Board and the Board of Trustees of New Trustco (the "Board of
Trustees") (together, "the Boards") each will have, among others, a standing
Executive Committee, a standing Audit Committee (in the case of New Trustco,
known as the Examining & Audit Committee) and a standing Compensation and
Benefits Committee. The Executive Committees of the Company Board and the
Board of Trustees (together, the "Executive Committee") will be composed of
Mr. Schwarz (the Committee Chairman) and seven other members, all of whom will
be appointed annually. The Executive Committee will have the power to act for
the Boards when the Boards are not in session and will also serve as a
nominating committee. The Executive Committee will consider nominees for
director and trustee recommended by shareholders who submit the names of
recommended nominees with supporting reasons for such recommendations in
writing to the Secretary of the Company or New Trustco, as the case may be. In
addition to Mr. Schwarz, the Executive Committee will initially consist of
Messrs. Butler, Davison, Douglas, Etherington, Maurer, Stookey and Wainwright.
The Audit Committee of the Company Board and the Examining and Audit
Committee of the Board of Trustees (together, the "Audit Committee") will
provide the Boards with an independent review of the Company's and New
Trustco's accounting policies, the adequacy of financial controls and the
reliability of financial information reported to the public. The Audit
Committee will also conduct examinations of the affairs of the Company and New
Trustco as required by law or as directed by the Boards, will supervise the
activities of the internal auditor and will review the services provided by
the independent auditors. The Audit Committee members, who will be appointed
annually, will initially consist of Messrs. Douglas, de Montebello, Smith,
Stookey and Wilson.
The Compensation and Benefits Committee of the Company Board and the
Board of Trustees (together, the "Compensation Committee") will determine
compensation and benefits for officer-trustees, will review salary and
benefits changes for other senior officers and will review employee benefit
plans under ERISA and
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<PAGE>
other employee benefit plans. The Compensation Committee members, who will be
appointed annually, will initially consist of Messrs. Smith, Hamilton, Tucker
and Wilson and Ms. Wooden.
Compensation of Directors
Each director of the Company who is not also an officer of the Company or
of New Trustco will receive an annual retainer fee of $15,000 and an
attendance fee of $1,000 for each meeting attended of the Company Board, of
the Board of Trustees, and of the committees of the respective Boards, other
than those mentioned in the following paragraph, in which cases no attendance
fee is applicable. If the Boards or the Executive Committee of the Company and
New Trustco meet on the same day, only one fee will be paid to a director-
trustee for attendance at both meetings. Under the Stock Plan for Non-Officer
Directors, each director of the Company who is not also an officer of the
Company or of New Trustco will receive 100 Shares of Company Common Stock each
February as an additional part of his or her annual retainer fee.
The Chairman of the Audit Committee will receive an annual retainer of
$12,500 and each member of such committee will receive an annual retainer of
$10,000. The Chairman of the Compensation Committee will receive an annual
retainer of $10,000 and each member of such committee will receive an annual
retainer of $7,000. All directors and trustees will be reimbursed for travel
and other out-of-pocket expenses incurred by them in attending board or
committee meetings.
Directors who are not also officers of the Company or of New Trustco may
defer cash compensation (including meeting attendance fees) for services
rendered as directors of the Company or as trustees of New Trustco or as
members of any Company Board committee. Under the Board Members' Deferred
Compensation Plan certain provisions applicable to amounts so deferred are
identical to provisions applicable to deferred performance share unit awards
under the 1989 Stock Compensation Plan of U.S. Trust Corporation. These
include provisions relating to (i) conversion of the deferred amounts into
phantom share units or allocation of such amounts to interest-bearing
accounts, (ii) crediting of dividend equivalents or earnings to such deferred
amounts, and (iii) the form and time of distributions with respect to such
deferred amounts. See "Executive Compensation Plans in Effect after the
Distribution -- Other Features of Stock Plan and Predecessor Performance
Plans -- Performance Share Units."
Directors who are not also officers of the Company or of New Trustco who
retire from the Company Board at age 72 with 10 or more years of service on
any of the Boards of UST, USTNY (prior to the Closing Date), the Company or
New Trustco will be paid an annual retirement benefit for life equal to the
annual retainer received as a member of such Boards in his or her last full
year of membership on such Boards. Directors with less than 10 years of
service who retire at age 72 and directors with 15 or more years of service
who retire prior to age 72 will be paid the same annual benefit for the lesser
of the number of years he or she served on such Boards or his or her lifetime.
It is anticipated that the Company will adopt a new stock option plan for
non-employee directors to replace the present U.S. Trust Corporation Stock
Option Plan for Non-Employee Directors (the "UST Directors' Option Plan")
which will be terminated. The terms and conditions on which options will be
granted to directors under the new stock option plan have not yet been
decided.
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<PAGE>
Executive Officers
The following table sets forth certain information concerning the persons
who will serve as executive officers of the Company.
<TABLE>
Name Age Position
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
H. Marshall Schwarz....................... 58 Chairman and Chief Executive Officer
Jeffrey S. Maurer......................... 47 President and Chief Operating Officer
Frederick B. Taylor....................... 53 Vice Chairman and Chief Investment Officer
John M. Deignan........................... 51 Executive Vice President
John C. Hover, II......................... 51 Executive Vice President
Paul K. Napoli............................ 49 Executive Vice President
Kenneth G. Walsh.......................... 46 Executive Vice President
John L. Kirby............................. 47 Senior Vice President and Treasurer
</TABLE>
The principal occupations and positions for the past five years of each
of the persons named above (other than Messrs. Schwarz, Maurer and Taylor,
whose information is set forth above) are as follows:
John M. Deignan joined USTNY in 1987 and is an Executive Vice President
in charge of the Institutional Asset Services and Securities Services & Trust
Operations Divisions. Prior to joining USTNY in August of 1987, Mr. Deignan
was associated with Dean Witter Reynolds for over 18 years serving in various
senior management roles including Deputy Director of National Operations and
Director of Capital Markets Operations. He received his B.A. degree from St.
Bonaventure University. Mr. Deignan represents USTNY as its senior officer on
the New York Clearing House Steering Committee, serves on the Board of
Directors of U.S. Trust Company Limited and Participants Trust Company, is a
member of the U.S. Trust Management, Emergency Operations, Risk Policy, and
Advisory Committees.
John C. Hover, II joined USTNY in 1976 and currently is manager of the
Personal Asset Management and Private Banking Division. He is also a member of
USTNY's Operating, Credit and Asset and Liability Management Committees. He
serves as Chairman of USTC International Corp. Prior to joining USTNY, Mr.
Hover was with Chemical Bank for nine years. He received his B.A. from the
University of Pennsylvania in 1965 and his M.B.A. from The Wharton School in
1967.
Paul K. Napoli joined USTNY in 1983 in the Personal Investment Division.
In 1989 he became head of the Asset Management Division and in December 1993
he headed up the Institutional and Mutual Fund Asset Management Division. At
present, Mr. Napoli is in charge of the Personal Investment Division in New
York. Mr. Napoli also serves on USTNY's Operating Committee and has
responsibility for four of USTNY's affiliates: UST of Connecticut, UST of New
Jersey, Campbell, Cowperthwait & Company and UST Securities Corp. He also
serves on the Special Fiduciary and Broker Relations Committee. Prior to
joining USTNY, Mr. Napoli was a Vice President at The Bank of New York for 11
years. He received his B.A. from Boston College in 1967 and his M.B.A. from
Columbia University in 1969. He holds the designations of Chartered Financial
Analyst and Certified Trust and Financial Advisor. Mr. Napoli is a member of
the New York Society of Security Analysts, the Association for Investment
Management and Research, and the Rockefeller University Trust and Estate
Council.
Kenneth G. Walsh joined USTNY in 1976 and currently is Division Manager
of the Corporate Trust and Agency Division. He is also a member of USTNY's
Operating Committee. Prior to obtaining his current position, Mr. Walsh served
as a Senior Vice President and General Counsel of USTNY. Prior to joining
USTNY in 1976, Mr. Walsh was an associate at the firm of Remsen, Millham &
Curran. Mr. Walsh is a member of the New York State and American Bar
Associations and is admitted to the bars of the U.S. District Court for the
Southern District of New York and the Supreme Court of the United States. He
also serves on the New York Corporate Fiduciaries Association. Mr. Walsh is
also on the board of U.S. Trust of Connecticut. He received his B.S. from St.
John's University in 1970, his J.D. from Brooklyn Law School in 1973, his
M.B.A. from St. John's University in 1976, his L.L.M. from New York University
in 1981 and attended the Advanced Management Program at the Harvard Business
School in 1989.
John L. Kirby joined USTNY in 1974. He currently heads the Audit Division
and the Risk Policy Office and was head of the Treasury Services Division from
1989 through 1992. He received his B.A. from
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<PAGE>
Middlebury College, Vermont, in 1969 and his M.B.A. from the Amos Tuck School
at Dartmouth College in 1974.
Executive Compensation
The following table sets forth certain information concerning
compensation paid by UST during 1994 to the Company's Chief Executive Officer
and the four other most highly compensated persons who will be executive
officers of the Company, based on salary and bonus earned during 1994.
<TABLE>
Summary Compensation Table
Long-Term
Compensation
-------------------------------
Annual
Compensation Awards Payouts
-------------------------------- ------------------- ---------
Other Restricted Stock Long-Term
Annual Stock Option Incentive All Other
Name and Principal Salary Bonus Compensation Awards Awards Payouts Compensation
Position Year ($) ($) ($) (#) (#) ($) ($)
- ------------------------------------- ---- -------- -------- ------------ ---------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. Marshall Schwarz.................. 1994 547,308 257,635 0 0 15,000 465,099 33,177
Chairman, CEO 1993 517,308 304,135 0 0 10,000 545,015 89,641
1992 485,192 305,740 0 0 0 221,688 28,451
Jeffrey S. Maurer.................... 1994 401,539 169,923 0 0 10,000 316,316 23,913
President, COO 1993 381,538 205,923 0 0 6,000 370,669 61,175
1992 359,423 212,029 0 0 15,000 150,617 20,737
Frederick B. Taylor.................. 1994 371,539 151,423 0 3,500 9,000 262,554 21,428
Vice Chairman, 1993 351,539 187,423 0 0 5,000 307,670 48,860
Chief Investment 1992 329,423 183,529 0 0 12,000 126,057 18,527
Officer
John M. Deignan...................... 1994 287,846 110,608 0 0 3,000 187,538 14,392
Executive Vice 1993 274,808 126,260 0 0 3,000 202,184 12,888
President 1992 259,808 112,010 0 0 6,000 84,112 12,040
Paul K. Napoli....................... 1994 272,846 111,358 0 0 3,000 173,286 17,046
Executive Vice 1993 257,769 136,230 0 0 3,000 188,996 13,740
President.......................... 1992 240,808 127,960 0 0 7,500 78,243 12,990
</TABLE>
The following table lists for each of the named executive officers (the
"Named Executive Officers") the payments that comprise the "All Other
Compensation" amounts found in the Summary Compensation Table.
<TABLE>
All Other Compensation
Employer Supplemental Earnings on
Contribution ESOP Deferred
to ESOP(1) Amount(2) Awards(3) Total
Name Year ($) ($) ($) ($)
- ----------------------------------- ----- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
H. Marshall Schwarz................ 1994 7,500 19,865 5,812 33,177
Jeffrey S. Maurer.................. 1994 7,500 12,577 3,836 23,913
Frederick B. Taylor................ 1994 7,500 11,077 2,851 21,428
John M. Deignan.................... 1994 7,500 6,892 0 14,392
Paul K. Napoli..................... 1994 7,500 6,142 3,404 17,046
- ---------------
(1) Represents the amount of the employer contribution made to the ESOP
portion of the 401(k) Plan and ESOP on behalf of each of the Named
Executive Officers for the year indicated.
(2) Represents the amount of the employer contribution, otherwise required
under the ESOP portion of the 401(k) Plan and ESOP, that could not be made
to the Plan on behalf of the Named Executive Officers for 1994 due to
certain limitations imposed under the Code (the "Code Limitations"). This
amount is credited to the officer's account under UST's Executive Deferred
Compensation Plan, and payment is deferred until termination of the
officer's employment. See "Executive Compensation Plans in Effect After
the Distribution -- Executive Deferred Compensation Plan" below for a
description of the Executive Deferred Compensation Plan.
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<PAGE>
<PAGE>
(3) Represents that portion of the interest accrued on certain previously
deferred incentive plan cash awards which is "above market" interest as
defined in the rules of the Securities Exchange Commission (the
"Commission").
</TABLE>
Stock Options
The following table sets forth certain information concerning options
granted during 1994 to the Named Executive Officers, including potential gains
that these officers would realize under two stock price growth-rate
assumptions compounded annually. Under the 5% growth-rate assumption, the
indicated values would be realized if the stock price reached $83.48 per share
at the end of the option term (10 years from grant). Correspondingly, under
the 10% growth-rate assumption, the indicated values would be realized if the
stock price reached $132.93 per share.
<TABLE>
Option Grants in 1994
Individual Grants Potential
--------------------------------------------------------- Realizable Value of
Number of Assumed Annual
Securities % of Total Exercise Price Rates of Stock
Underlying Options per Share Price Appreciation
Options Granted to (Market Price for Option Term(1)
Granted(2) (% Employees in at Date of Expiration -------------------
Name of Shares) Fiscal Year Grant)($) Date 5%($) 10%($)
- -------------------------- -------------- ------------ -------------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
H. Marshall Schwarz....... 15,000 7.7 51.25 01/25/04 483,450 1,225,200
Jeffrey S. Maurer......... 10,000 5.1 51.25 01/25/04 322,300 816,800
Fredrick B. Taylor........ 9,000 4.6 51.25 01/25/04 290,070 735,120
John M. Deignan........... 3,000 1.5 51.25 01/25/04 96,690 245,040
Paul K. Napoli............ 3,000 1.5 51.25 01/25/04 96,690 245,040
- ---------------
(1) Annual growth-rate assumptions are prescribed by rules of the Commission
and do not reflect actual or projected price appreciation of UST Common
Stock. The actual average annual price appreciation of UST Common Stock
over the last ten years was 13.71%.
(2) Options become exercisable in four equal, cumulative installments in each
of the first through fourth anniversary dates of the date of grant
(January 25, 1994).
</TABLE>
The following table discloses the aggregated stock option exercises for
each of the Named Executive Officers in the last fiscal year. It also shows
the number of vested and unvested unexercised options and the value of vested
and unvested unexercised in-the-money options.
<TABLE>
Aggregated Option Exercises in 1994 and Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Year-End(#) Year-End($)(2)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
H. Marshall Schwarz......... 5,500 176,875.00 58,500/35,000 1,585,050/594,025
Jeffrey S. Maurer........... 2,300 81,075.00 39,450/31,250 1,055,692/556,352
Frederick B. Taylor......... 2,550 89,887.50 30,950/25,500 814,850/432,637
John M. Deignan............. 1,000 24,000.00 9,250/9,750 204,715/143,145
Paul K. Napoli.............. 1,500 52,875.00 10,500/10,500 235,402/156,457
- ---------------
(1) Aggregate market value on the date(s) of exercise less aggregate exercise
price.
(2) Total value of unexercised options is based on the difference between
aggregate market value of UST Common Stock at $63.50 per share, the
closing price on December 30, 1994, and aggregate exercise price.
</TABLE>
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<PAGE>
Performance Share Units
The following table sets forth certain information concerning long-term
incentive awards granted during 1994 to the Named Executive Officers. The
awards are granted in the form of performance share units under UST's 1989
Stock Compensation Plan. See "Executive Compensation Plans in Effect After the
Distribution -- Other Features of Stock Plan and Predecessor Performance
Plans" below for a further description of these awards.
<TABLE>
Long-Term Incentive Awards Granted in 1994
Estimated Future Payouts of Performance Share
Number of Performance Units
Performance Period Until ------------------------------------------------
Name Share Units (#) Payout Threshold(#)(1) Target(#)(2) Maximum(#)(2)
- ------------------------ --------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
H. Marshall Schwarz..... 6,042 3 years 3,021 6,042 6,042
Jeffrey S. Maurer....... 4,076 3 years 2,038 4,076 4,076
Frederick B. Taylor..... 3,420 3 years 1,710 3,420 3,420
John M. Deignan......... 2,394 3 years 1,197 2,394 2,394
Paul K. Napoli.......... 2,257 3 years 1,129 2,257 2,257
- ---------------
(1) Assumes minimum number of performance share units earned in each
performance goal for 1994-96 performance cycle.
(2) Assumes all specified performance targets are reached.
</TABLE>
The UST Board and UST's Compensation Committee have approved a
recommendation by UST's management that, if the Merger is consummated, the
performance goals established for the 1993-95 and the 1994-96 performance
cycles will be deemed to have been met in full, and that all performance share
units awarded to each UST officer for each of these performance cycles will be
deemed to be fully earned and payable to the officer if he or she remains in
employment with the Company, New Trustco or their affiliates until the end of
such performance cycle or if he or she leaves such employment before the end
of such performance cycle as a result of retirement or termination due to
staff reductions associated with the Distribution and the Merger.
BENEFICIAL OWNERSHIP
All of the outstanding shares of Company Common Stock are, and will be
prior to the Distribution, held beneficially and of record by UST. Set forth
in the table below is information as of December 31, 1994, with respect to the
number of shares of UST Common Stock beneficially owned by (i) each person or
entity known by the Company to own more than five percent of the outstanding
UST Common Stock, (ii) each person who will be a director of the Company at
the Time of Distribution, (iii) each of the Named Executive Officers of the
Company and (iv) all persons who will be directors and executive officers of
the Company at the Time of Distribution as a group. Because the Distribution
will be made on the basis of one share of Company Common Stock for each share
of then outstanding UST Common Stock, the percentage ownership of each person
or entity named below immediately following the Distribution will be the same
as the percentage ownership of such person or entity immediately prior to the
Distribution. A person or entity is considered to "beneficially own" any
shares (i) over which such person or entity exercises sole or shared voting or
investment power or (ii) which such person or entity has the right to acquire
at any time within 60 days (e.g., through the exercise of employee stock
options). Unless otherwise indicated, each person or entity has sole voting
and investment power with respect to the shares set forth opposite such
person's or entity's name.
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<PAGE>
<TABLE>
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- --------------------------------------- --------------------------------------- --------
<S> <C> <C>
401(k) Plan and ESOP of United States 1,335,133 shares (in a fiduciary 14.13
Trust Company of New York and capacity)(1)
Affiliated Companies
114 West 47th Street
New York, New York 10036
GeoCapital Corporation 618,750 shares (with sole dispositive 6.55
767 Fifth Avenue power)(2)
New York, New York, 10158
United States Trust Company of New York 354,139 shares (in fiduciary and agency 3.75
and Affiliated Companies capacities)(3)
114 West 47th Street
New York, New York 10036
Eleanor Baum 300(4)(5)
Samuel C. Butler 7,730(4)(5)(6)
Peter O. Crisp 700(4)(5)
Daniel P. Davison 48,095(7)
Philippe de Montebello 800(4)
Paul W. Douglas 1,837(4)(5)
Edwin D. Etherington 8,150
Antonia M. Grumbach 1,300(4)
Frederic C. Hamilton 30,825(4)
Peter L. Malkin 1,200(4)
Jeffrey S. Maurer 19,436(7)(8)(9)
Orson D. Munn 9,500(4)(10)
H. Marshall Schwarz 33,625(8)(9)
Philip L. Smith 5,800
John Hoyt Stookey 5,800(4)
Frederick B. Taylor 26,748(7)(8)(9)(11)
Richard F. Tucker 3,325(4)(5)
Carroll L. Wainwright, Jr. 3,600(4)(7)
Robert N. Wilson 950(4)
Ruth A. Wooden 200(4)(5)
John M. Deignan 5,600(8)(9)
John C. Hover, II 2,925(8)(9)
Paul K. Napoli 6,528(8)(9)
Kenneth G. Walsh 3,309(8)(9)
John L. Kirby 700(8)
All directors and executive officers as
a group (numbering 25 as a group) 228,983 2.42
- ---------------
(1) These shares consist of 1,058,834 shares allocated or attributable to the
individual accounts of participants in the 401(k) Plan and ESOP, who have
voting and dispositive power over such shares, and 276,299 shares which
have not been allocated to participant accounts, as to which shares
USTNY, as Trustee of the Plan, may be deemed to have voting and
dispositive power. In February 1995, contributions in the aggregate
amount of $4,275,480 were made to the Plan which, under the terms of the
Plan, will be used to purchase additional shares of UST Common Stock for
participants' accounts under the 401(k) portion of the Plan. These shares
will be acquired through purchases in the market. Assuming that the
shares are purchased at an average price of $66 per share, the Plan will
hold an additional 64,780 shares of UST Common Stock as a result of these
contributions. The number of shares set forth in the table above does not
include these 64,780 shares.
(2) Information herein with respect to GeoCapital Corporation ("GCC") has
been obtained from GCC and from GCC's filings with the Commission
pursuant to Section 13(g) of the Exchange Act by GCC, a registered
investment advisor, and Barry K. Fingerhut and Irwin Lieber, by reason of
their ownership interest in GCC. Such filing further discloses that the
shares were acquired in the ordinary course of business and were not
acquired for the purpose of and do not have the effect of changing or
influencing
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<PAGE>
the control of UST and were not acquired in connection with or as a
participant in any transaction having such purpose or effect.
(3) UST, USTNY and their affiliates have sole voting power as to 16,171 of
such shares, shared voting power as to 42,452 of such shares, sole
dispositive power as to 197,237 of such shares and shared dispositive
power as to 156,902 of such shares. Such shares do not include any shares
held in the 401(k) Plan and ESOP. As a matter of policy, USTNY and its
affiliates vote shares held in an agency capacity only as directed by
customers, and where shares are held as a co-fiduciary, vote such shares
as directed by the other co-fiduciaries. Shares held by UST, USTNY and
their affiliates as sole fiduciary are not voted unless specific voting
instructions are given by a donor or beneficiary pursuant to the
governing trust instrument.
(4) Does not include shares subject to non-employee director stock options
exercisable within 60 days of December 31, 1994 as follows: Dr. Baum and
Ms. Wooden each 1,650 shares, Messrs. Crisp and Malkin each 3,350 shares,
Mr. Munn 2,000 shares, Mr. Wilson 4,650 shares and 5,000 shares by each
of the other non-employee directors (as defined in the Plan) other than
Messrs. Etherington and Smith.
(5) Does not include shares attributable to deferred awards under the Board
Members' Deferred Compensation Plan as follows: Dr. Baum 232 shares, Mr.
Butler 8,670 shares, Mr. Crisp 1,232 shares, Mr. Douglas 5,709 shares,
Mr. Tucker 309 shares and Ms. Wooden 179 shares.
(6) Includes 1,250 shares held in a trust of which Mr. Butler is trustee and
4,914 shares held in a trust in which he has a beneficial interest.
(7) Includes 10,254 shares owned by Mr. Davison's wife, 2,500 shares owned by
Mr. Maurer's wife, 638 shares held in trust by Mr. Maurer's wife for
their children, 3,989 shares owned by Mr. Taylor's wife and 300 shares
owned by Mr. Wainwright's wife, with respect to which the director in
each case disclaims beneficial ownership.
(8) Does not include shares subject to employee stock options exercisable
within 60 days of December 31, 1994 as follows: Mr. Schwarz 72,250
shares, Mr. Maurer 53,450 shares, Mr. Taylor 41,200 shares, Mr. Deignan
12,250 shares, Mr. Hover 12,325 shares, Mr. Napoli 13,875 shares, Mr.
Walsh 14,500 shares and Mr. Kirby 5,000 shares.
(9) Does not include shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans as follows: Mr.
Schwarz 78,086 shares, Mr. Maurer 29,008 shares, Mr. Taylor 10,864
shares, Mr. Deignan 5,614 shares, Mr. Hover 2,649 shares, Mr. Napoli
9,063 shares and Mr. Walsh 7,705 shares.
(10) Includes 1,700 shares held in a trust of which Mr. Munn is trustee.
(11) Includes 270 shares held in a trust of which Mr. Taylor is sole trustee
and in which he has a beneficial interest.
</TABLE>
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION
Immediately prior to the Distribution, UST and USTNY will transfer to the
Company and New Trustco, respectively, each employee benefit and executive
compensation plan maintained by it other than any Retained Plan (as defined
under "Effect of Transactions on UST Employees and UST Benefit Plans --
Retained Plans" in the Proxy Statement-Prospectus to which this Information
Statement is attached as Appendix H), and the Company and New Trustco,
respectively, with the approval of UST as the Company's sole stockholder, will
adopt, and will assume and become solely responsible for all liabilities and
obligations of UST or USTNY under, each of the plans so transferred to it. See
"Effect of Transactions on UST Employees and UST Benefit Plans -- Transfer of
Plans" in the Proxy Statement-Prospectus to which this Information Statement
is attached as Appendix H for a list of the plans to be so transferred.
Set out below is a description of the principal employee benefit and
compensation plans of the Company and New Trustco that will be in effect
following the Distribution and the Merger and in which the Named Executive
Officers will participate.
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<PAGE>
Retirement Benefits
Each of the Named Executive Officers is (and will continue to be after
the Distribution and Merger) a participant in the Employees' Retirement Plan
of United States Trust Company of New York and Affiliated Companies (the
"Retirement Plan"). The Retirement Plan is a defined benefit pension plan
which is tax-qualified under Section 401(a) of the Code. The Retirement Plan
provides for payment of a pension in an annual amount equal to a specified
percentage (based on the length of a participant's credited service up to a
maximum of 35 years) of the participant's average base salary for his highest
five consecutive years of base salary during the last ten plan years prior to
retirement or other termination of employment, reduced by a portion of the
participant's annual Social Security benefit. The table below shows the
estimated annual pension payable under the Retirement Plan's benefit formula
upon retirement at age 65 to persons in specified remuneration and
years-of-service classifications who have elected to receive their pensions
under a straight life annuity option. The amounts shown do not reflect
reductions which would be made to offset Social Security benefits.
<TABLE>
Estimated Annual Pension for
Representative
Years of Credited Service
Highest Consecutive ----------------------------------
Five-Year 35 or
Average Base Salary 15 25 More
- ------------------- -------- -------- --------
<S> <C> <C> <C>
$ 200,000 $ 67,500 $100,000 $120,000
250,000 84,375 125,000 150,000
300,000 101,250 150,000 180,000
350,000 118,125 175,000 210,000
400,000 135,000 200,000 240,000
450,000 151,875 225,000 270,000
500,000 168,750 250,000 300,000
550,000 185,625 275,000 330,000
600,000 202,500 300,000 360,000
</TABLE>
The table below sets forth the number of years of credited service and
the average base salary, in each case as of the end of 1994, that would be
taken into account in determining the pension payable under the Retirement
Plan's benefit formula to each of the Named Executive Officers.
<TABLE>
Years Average
Name of Service Base Salary
----------------------------------------------- ---------- -----------
<S> <C> <C>
H. Marshall Schwarz............................ 27.9 $ 496,000
Jeffrey S. Maurer.............................. 24 366,000
Frederick B. Taylor............................ 28.6 337,000
John M. Deignan................................ 7 263,400
Paul K. Napoli................................. 11 246,400
</TABLE>
The amount of compensation taken into account in determining each Named
Executive Officer's pension under the Retirement Plan's formula, as shown in
the third column of the table above, represents the average of the rates of
base salary in effect for such officer as of the last day of each of the years
1990 through 1994. In the case of each such Named Executive Officer, the base
salary amounts so taken into account for the years 1992, 1993 and 1994 differ
from the amounts shown in the "Salary" column of the Summary Compensation
Table for these years, in that the latter amounts represent the base salary
actually earned by such Named Executive Officer during each such year, rather
than the rate of base salary in effect for such Named Executive Officer at the
end of that year.
The pension amounts otherwise payable from the Retirement Plan are
subject to reduction to the extent necessary to comply with the Code
Limitations. However, in the case of each Named Executive Officer, any pension
amount otherwise payable under the Retirement Plan's benefit formula that
cannot be paid to such Named Executive Officer from the Retirement Plan
because of the Code Limitations will be paid to the officer under the
Company's Benefit Equalization Plan or, in the case of Messrs. Schwarz, Maurer
and Taylor,
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<PAGE>
under a supplemental pension agreement which UST has entered into with each
such officer and which will be transferred to and assumed by the Company.
401(k) Plan and ESOP
The 401(k) Plan and ESOP is a defined contribution pension plan.
Employees are eligible to become participants in the plan following the
completion of one year of service, except that employees are eligible to make
tax-deferred elective contributions from their base salary following the
completion of three months of service. Contributions under the 401(k) Plan and
ESOP consist of annual employer contributions made on behalf of the
participants under the Plan's ESOP feature ("ESOP Contributions"), and
tax-deferred elective contributions made by the participants under the 401(k)
Plan and ESOP's 401(k) feature ("401(k) Contributions").
Under the 401(k) feature of the 401(k) Plan and ESOP, a participant may
elect to have a specified percentage of his or her annual award under the 1990
Annual Incentive Plan of United States Trust Company of New York and
Affiliated Companies (the "1990 Annual Incentive Plan") (or in the case of
participants who are not eligible for awards under the 1990 Annual Incentive
Plan, the Incentive Award Plan of United States Trust Company of New York and
Affiliated Companies) and/or a specified percentage of the participant's base
salary, contributed to the 401(k) Plan and ESOP on his or her behalf as a
401(k) Contribution. All 401(k) Contributions made on behalf of a participant
are paid to a trust fund maintained under the 401(k) Plan and ESOP and
invested as directed by the participant in one or more of six investment
funds, including a fund designed for investment in UST Common Stock (the
"U.S.T. Corp. Stock Fund").
The annual ESOP Contribution made to the 401(k) Plan and ESOP on behalf
of each participant is generally equal to 5% of such participant's
compensation. In the case of any participant who is a participant in the 1990
Annual Incentive Plan, the amount of ESOP contribution to be made for the
participant for any year may not exceed the amount of the participant's award
under the 1990 Annual Incentive Plan for such year. The ESOP feature of the
401(k) Plan and ESOP is designed to invest in UST Common Stock. The 401(k)
Plan and ESOP acquired UST Common Stock with the proceeds of loans (the "ESOP
Loan"), and the shares of UST Common Stock so acquired were placed in a
suspense account. Each year, shares so acquired are released to the extent the
ESOP Loan is repaid, and the shares so released are allocated among the
individual accounts maintained for the ESOP participants in proportion to the
amounts of ESOP Contributions made on their behalf for the year. The ESOP Loan
is repaid with dividends on the UST Common Stock acquired with the ESOP Loan
proceeds, and with the ESOP Contribution, to the extent determined by the
401(k) Plan and ESOP Committee. Each participant receives full credit for
dividends that are paid on the shares of UST Common Stock allocated to his or
her ESOP account, whether or not such dividend are used to repay the ESOP
Loan. Any ESOP Contributions and dividends not applied to repay the ESOP Loan
are invested in participants' accounts in the U.S.T. Corp. Stock Fund.
The Code Limitations restrict the amount of the ESOP Contribution that
can be made each year on behalf of any participant. Prior to 1994, the amount
of the ESOP Contribution, which could not be made to the 401(k) Plan and ESOP
on behalf of a participant because of such limitations was provided to the
participant through an award of benefit equalization units under the 1989
Stock Compensation Plan of U.S. Trust Corporation (the "Stock Plan").
Effective with the ESOP Contribution to be made to the 401(k) Plan and ESOP
Plan for 1994, the portion of any ESOP Contribution that cannot be so made to
the 401(k) Plan and ESOP on behalf of a participant will be provided to the
participant through a credit to the participant's account under the Executive
Deferred Compensation Plan described below.
A participant's interest in the trust fund under the 401(k) Plan and ESOP
is at all times fully vested. Distributions from the 401(k) Plan and ESOP
become payable upon the participant's retirement, death or other termination
of employment. Withdrawals from the 401(k) portion of a participant's account
may be made after age 59 1/2 or in cases of hardship. Distributions from the
401(k) Plan and ESOP are made in a lump sum, or, in certain cases, in annual
installments. Such payments are made in cash, except that any shares of UST
Common Stock allocated to the participant's account under the ESOP portion of
the 401(k) Plan and
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<PAGE>
ESOP, and shares attributable to the portion of the participant's account that
are invested in the U.S.T. Corp. Stock Fund, may generally be distributed in
kind.
It is anticipated that following the Merger, shares of Chase Common Stock
received in exchange for UST Common Stock held in the ESOP portion of the
401(k) Plan and ESOP and in the U.S.T. Corp. Stock Fund will be sold, and the
proceeds of such sales will be used to purchase shares of Company Common
Stock. The shares of Company Common Stock so acquired, together with the
shares of Company Common Stock received by the 401(k) Plan and ESOP pursuant
to the Distribution, will be held in the 401(k) Plan and ESOP subject to the
same provisions as applied to the shares of UST Common Stock with respect to
which the distributed shares of Company Common Stock and the shares of Chase
Common Stock were received.
Annual Incentive Awards
The 1990 Annual Incentive Plan provides for annual cash awards to be
earned and paid based on the attainment of annual performance objectives
established by the Compensation Committee at the beginning of each year. The
Compensation Committee has the authority to select the officers who will be
eligible to receive awards, to determine the maximum amount available for
awards each year, to establish the performance objectives that must be met in
order for awards to be earned and paid, and to determine the extent to which
such performance objectives have been met. In the Compensation Committee's
discretion, the performance objectives may be based on corporate performance,
the participant's individual performance, or a combination of the two.
Because of the special circumstances that will obtain with respect to the
plan's operations during 1995 as a result of the Distribution and the Merger,
the annual award to be made to a participant under the plan for the year 1995
will consist of two separately determined components, one based on attainment
of performance objectives established for the period from January 1, 1995 to
the Closing Date (the "Pre-Merger Period"), and the second based on attainment
of performance objectives that will be established for the period from the
Closing Date to December 31, 1995 (the "Post-Merger Period"). UST's
Compensation Committee has determined that the aggregate amount available for
awards for the Pre-Merger Period will be based on UST's attainment of certain
specified levels of net income for such period. The amounts to be awarded to
individual participants will be determined at the close of the Pre-Merger
Period and will be based on the evaluation by UST's management and the
Compensation Committee of the participant's personal achievements and
contributions. It is anticipated that the performance goals and maximum award
amounts for the Post-Merger Period will not be established until some time
shortly before the Closing Date.
Awards otherwise earned under the plan for any year are reduced (i) by
the amount of the ESOP Contribution to be made to the 401(k) Plan and ESOP on
the participant's behalf for such year, and (ii) by the amount credited to the
participant's account under the Executive Deferred Compensation Plan with
respect to any portion of the participant's ESOP Contribution that cannot be
made to the 401(k) Plan and ESOP for such year because of the Code
Limitations. Awards that are earned under the plan are payable in cash after
the close of each year, except to the extent that the participant has elected,
instead, to have any portion of such award contributed on his or her behalf as
a 401(k) Contribution to the 401(k) Plan and ESOP, or to defer any portion of
his or her award under the Executive Deferred Compensation Plan.
New Stock Options
The provisions of the Stock Plan to be adopted by the Company will
include provisions for the grant of new stock options. The terms and
conditions that will apply to the new stock options include the following: (a)
the aggregate number of shares of Company Common Stock available for issuance
pursuant to the exercise of options granted during the term of the plan will
be limited to 1,300,000 shares; (b) all officers of the Company, New Trustco,
and their affiliates at or above the rank of Vice President will be eligible
to receive grants of options; (c) options granted under the plan may be either
options that qualify as incentive stock options under section 422 of the Code,
or "non-qualified" stock options, as the Compensation Committee determines;
(d) the period within which options granted under the Stock Plan may be
exercised may not exceed 10 years from the date of grant; (e) the purchase
price per share at which options granted
H-78
<PAGE>
under the Stock Plan may be exercised shall not be less than the fair market
value of a share of Company Common Stock on the date the option is granted;
and (f) the total number of shares of Company Common Stock with respect to
which options may be granted under the Stock Plan to any officer during any
calendar year may not exceed 250,000 shares.
Subject to the provisions of the Stock Plan, the Compensation Committee
will be authorized to select the officers who are to be granted options; to
determine the number of shares to be covered by each option granted, and the
time or times when and the manner in which each option shall be exercised; to
determine the purchase price per share at which each option shall be
exercised; and to grant options subject to such other terms and conditions,
not inconsistent with the provisions of the Stock Plan, as it deems
appropriate.
The adoption of the foregoing provisions for the grant of new stock
options, and the grant of any options pursuant thereto, will be subject to the
approval of the stockholders of the Company at its first meeting of
stockholders following the Distribution and the Merger.
Other Features of Stock Plan and Predecessor Performance Plans
Apart from the present stock option provisions of the Stock Plan which
are not being transferred to the Company, the Stock Plan provides for the
award of stock-based compensation to senior officers of UST, USTNY and other
subsidiaries in two other forms: in shares of restricted stock and in
performance share units. In addition, for years prior to 1994, benefit
equalization units were awarded to officers to provide them with the full
benefits to which they would have been entitled under the ESOP portion of the
401(k) Plan and ESOP but for the Code Limitations.
The award of benefit equalization units under the Stock Plan has been
discontinued effective with the contribution to be made to the ESOP portion of
the 401(k) Plan and ESOP for the year 1994. No awards of restricted stock or
performance share units will be made under the Stock Plan during the
Pre-Merger Period. The compensation strategies and program to be adopted for
the senior officers of the Company following the Merger are currently under
review. No decision has been made yet as to whether any awards of restricted
stock or performance share units will be made under the Stock Plan after the
Merger. However, the present provisions of the Stock Plan relating to
restricted stock, performance share units and benefit equalization units, and
the present provisions of the Predecessor Performance Plans (as defined below)
relating to deferred awards under those plans, will continue to apply after
the Distribution and the Merger to previously-made awards of these forms of
compensation, with certain modifications to reflect the Distribution and the
Merger. These provisions are summarized below.
Restricted Stock
Recipients of awards of shares of restricted stock are prohibited from
selling, pledging or otherwise disposing of such shares within a period
(typically three years) determined by the Compensation Committee. Restricted
shares are held in the officer's name in a book entry account. During the
restricted period, the officer has all of the rights of a stockholder of UST
with respect to his or her restricted shares, including voting and dividend
rights. Subject to satisfaction of any tax withholding obligation,
certificates evidencing the shares are delivered to the officer free of
restrictions at the conclusion of the restricted period. In the event of the
termination of employment of an officer for any reason, all shares then
subject to restrictions are forfeited unless the Compensation Committee
otherwise determines.
If the Merger is consummated, the restrictions applicable with respect to
the restricted shares of UST Common Stock credited under the Stock Plan to all
officers other than Mr. Taylor and Richard E. Brinkmann (who presently serves
as Senior Vice President, Comptroller and Principal Accounting Officer of UST
and who will serve in the same capacities with the Company) will automatically
lapse; and, subject to satisfaction of applicable tax withholding obligations,
certificates for the shares of Company Common Stock and Chase Common Stock
received pursuant to the Distribution and the Merger with respect to the
shares so credited to each such officer will be delivered to the officer free
of such restrictions.
H-79
<PAGE>
The restrictions applicable with respect to the restricted shares of UST
Common Stock credited to Messrs. Taylor and Brinkmann will not lapse upon the
consummation of the Merger; and such restrictions will continue to apply with
respect to the shares of Company Common Stock and Chase Common Stock received
pursuant to the Distribution and the Merger with respect to their restricted
shares of UST Common Stock.
Performance Share Units
The Stock Plan provides for the grant of performance share units which
are earned over a 3-year "Performance Cycle" to the extent that
pre-established performance goals for UST are met. Except for any portion of
an earned award that an officer has previously elected to defer, earned awards
are paid as soon as practicable after the close of the Performance Cycle.
Awards that are not deferred are paid in a combination of cash and UST Common
Stock, as the Compensation Committee determines, but at least 50% of a non-
deferred award must be paid in UST Common Stock. Deferred awards are either
converted to "phantom share units" ("PSUs") or credited to the "Interest
Portion" of the officer's account under the plan, as the officer may elect,
but at least 50% of any deferred award must be converted to PSUs.
Earnings are credited to the Interest Portion of a deferred award at
USTNY's prime rate, or at a rate of return matching the rate of return on any
one or more of the investment funds available for investment of the 401(k)
portion of employees' accounts under the 401(k) Plan and ESOP other than the
U.S.T. Corp. Stock Fund, as the officer may select from time to time. The "PSU
Portion" of an officer's deferred award is credited, as of the date of each
dividend payment on UST Common Stock, with dividend equivalents in the form of
additional PSU's.
Payments with respect to deferred awards are made in 10 annual
installments commencing in the year following the officer's retirement or
other termination of employment. Payments with respect to the PSU Portion of a
deferred award are made in the form of shares of UST Common Stock, and
payments with respect to the Interest Portion of a deferred award are made in
cash.
If the Merger is consummated, the performance goals established for the
Performance Cycles presently in progress (i.e., those ending at the close of
1995 and 1996), will be deemed to have been fully met, and all performance
share units awarded to each officer for each of the 1995-1996 Performance
Cycles will be deemed to be fully earned and payable to the officer if he or
she remains in employment with the Company, New Trustco or their affiliates
until the end of such Performance Cycle or if he or she leaves such employment
before the end of such Performance Cycle as a result of retirement or
termination due to staff reductions associated with the Distribution and the
Merger.
Performance share units were also awarded to officers of UST and USTNY
and their subsidiaries under two predecessor plans that will be transferred to
and adopted by the Company: the 1988 Long-Term Performance Plan of U.S. Trust
Corporation and the Long-Term Performance Plan of U.S. Trust Corporation
(collectively, the "Predecessor Performance Plans"). The provisions of the
Predecessor Performance Plans are substantially the same as those applicable
to the performance share unit feature of the Stock Plan. No Performance Cycles
remain in progress under the Predecessor Performance Plans. However, deferred
awards remain outstanding under these plans, in the form of PSU's and account
balances that are credited with interest under substantially the same
provisions as described above in the case of the "Interest Portion" of
deferred awards under the Stock Plan.
Each performance share unit and each PSU credited to an officer under the
Stock Plan and the Predecessor Performance Plans represents one share of UST
Common Stock, but constitutes only a "phantom" share. It entitles the holder
to be credited with dividend equivalents and to receive one share of UST
Common Stock for each such unit to the officer's credit when distributions are
made to the officer from the plan, but it does not otherwise entitle the
officer to any of the rights of a holder of UST Common Stock. As of the
Closing Date, all performance share units and all PSU's outstanding under the
Stock Plan and the Predecessor Performance Plans will be converted into new
units representing Company Common Stock in the manner described below under
"Unit and Share Adjustments".
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<PAGE>
Benefit Equalization Units
For years prior to 1994, the Stock Plan provided for awards to officers
of benefit equalization units ("BEUs") with an aggregate value equal to the
amount of the ESOP contribution that could not be made to the 401(k) Plan and
ESOP on the officer's behalf for any year because of the Code Limitations. The
BEUs earn dividend equivalents with respect to dividends that are paid on UST
Common Stock, and the dividend equivalents attributable to an officer's BEUs
are credited to the officer in the form of additional BEUs. An officer's
interest in the BEUs credited to his account under the plan is fully vested at
all times. Officers receive a distribution with respect to their BEUs upon the
termination of their employment. Distribution is made in the form of shares of
UST Common Stock, and cash for fractional units.
Each BEU credited to an officer represents one share of UST Common Stock,
but constitutes only a "phantom" share. It entitles the holder to be credited
with dividend equivalents and to receive one share of UST Common Stock for
each such unit to the officer's credit when distributions are made to the
officer from the plan, but it does not otherwise entitle the officer to any of
the rights of a holder of UST Common Stock. As of the Closing Date, all BEUs
outstanding under the Stock Plan will be converted into new units representing
Company Common Stock in the manner described below under "Unit and Share
Adjustments".
Unit and Share Adjustments
As of the Closing Date, all performance share units, PSUs and BEUs then
standing to each officer's credit under the Stock Plan and the Predecessor
Performance Plans will be converted, respectively, into new performance share
units, PSUs and BEUs, each one of which will represent one share of Company
Common Stock. The number of such new units (the "New Units") to be credited to
an officer with respect to his or her performance share units, PSUs and BEUs
pursuant to such conversion will be equal to (i) the product of (A) the number
of performance share units, PSUs, or BEUs, as the case may be, standing to the
officer's credit as of the Closing Date, multiplied by (B) the Average Value
Per Share of UST Common Stock (defined below), divided by (ii) the amount
representing the 10-day average of the daily average of the high bid and low
asked prices for a share of Company Common Stock in the over-the-counter
market as reported by the National Quotation Bureau Incorporated on a
"when-issued" basis on each of the 10 trading days immediately preceding the
Closing Date. For purposes of the foregoing, the "Average Value Per Share of
UST Common Stock" shall mean the average of the daily mean between per-share
high and low prices for UST Common Stock on each trading day during the 30-day
period ending on the day immediately preceding the Closing Date, as quoted on
the National Market System.
Authorized Shares
The Company anticipates that as of the Closing Date, the number of
restricted shares of UST Common Stock that will be subject to restrictions
that will lapse upon consummation of the Merger, the number of performance
share units previously awarded with respect to performance cycles that will
still be in progress, and the number of PSU's and BEU's that will remain
standing to the credit of officers under the Stock Plan and Predecessor
Performance Plans, will represent an aggregate of 448,200 shares of UST Common
Stock. Because the unit and share adjustments described above will depend upon
the relative trading prices for the UST Common Stock and the Company Common
Stock (on a "when-issued" basis) during the 30-day and 10-day periods,
respectively, ending on the day before the Closing Date, the Company will not
be able to determine, until such preceding day, the exact number of shares of
Company Common Stock that will be needed for issuance under the Stock Plan and
Predecessor Performance Plans to satisfy the obligations of UST that the
Company will be assuming. The Company presently anticipates that the Stock
Plan and the Predecessor Performance Plans, as adopted by the Company, will
provide for an aggregate of 850,000 shares of Company Common Stock to be
available for issuance under the plans with respect to those
previously-granted stock-based awards, in addition to the 1,300,000 shares of
Company Common Stock that will be available for the new stock options
described above.
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Executive Deferred Compensation Plan
The Executive Deferred Compensation Plan of U.S. Trust Corporation (the
"Executive Deferred Compensation Plan") is a nonqualified plan of deferred
compensation. All officers at or above the rank of Vice President whose total
annual compensation (as defined in the plan) exceeds $150,000 are eligible to
participate in the plan. The plan permits each eligible officer to elect to
defer portions of the officer's award for any year under the 1990 Annual
Incentive Plan and a portion of certain other incentive payments. The
Executive Deferred Compensation Plan also provides for the crediting to an
eligible officer's account under the plan of (i) amounts equal to the portion
of the ESOP contribution for 1994 or any later year that cannot be made on the
officer's behalf to the 401(k) Plan and ESOP because of the Code Limitations,
and (ii) if the officer has so elected in accordance with the provisions of
the plan, amounts equal to the payments that otherwise would have been made to
the officer with respect to his or her unexercised stock options under the UST
Option Plans (as defined under "Effect of Transactions on UST Employees and
UST Benefit Plans -- Retained Plans" in the Proxy Statement-Prospectus),
and/or with respect to the officer's account balance under the AIP (as so
defined), as a result of the Merger constituting a "change in control" as
defined in the UST Option Plans and the AIP.
A participant's deferred amounts under the Executive Deferred
Compensation Plan are credited with interest at rates of return chosen by the
participant from among the rates of return on the investment funds available
for investment of the 401(k) portion of employees' accounts under the 401(k)
Plan and ESOP other than the U.S.T. Corp. Stock Fund.
Deferred amounts under the Executive Deferred Compensation Plan become
payable upon a participant's termination of employment. Payment of deferred
amounts generally will be made in a single cash lump sum. However, if
employment is terminated by reason of retirement or death and the participant
has so elected, payment will be made in ten annual cash installments. In the
case of amounts payable upon retirement, a participant also may elect to
receive payment in 15 annual cash installments. Participants whose employment
with the Company, New Trustco or their affiliates terminates prior to the end
of 1995 as a result of staff reductions associated with the Distribution and
the Merger also may elect to receive payment of their deferred amounts in 10
annual cash installments.
Change in Control Provisions
Various compensation and benefit plans under which the Named Executive
Officers will be covered will contain provisions pursuant to which payment of
the benefits provided under the plan would be accelerated in the event of a
"change in control" of the Company (as defined in the Stock Plan), unless the
Company Board otherwise determines prior to the date of the change in control
(or not later than 45 days thereafter in certain circumstances). As defined in
the Stock Plan, a "change in control" means that any of the following events
has occurred: (i) 20% or more of the shares of Company Common Stock have been
acquired by any person (as defined in Section 3(a)(9) of the Exchange Act)
other than directly from the Company; (ii) there has been a merger or
equivalent combination after which 49% or more of the voting stock of the
surviving corporation is held by persons other than former stockholders of the
Company; or (iii) 20% or more of the directors elected by stockholders to the
Company Board are persons who were not nominated by management in the most
recent proxy statement of the Company.
Specifically, upon such a change in control (a) the restrictions
applicable to all restricted stock previously awarded under the Stock Plan
would lapse, and a cash payment would be made for each share of restricted
stock equal to the Determined Value (as defined in the Stock Plan) of a share
of Company Common Stock; (b) each new stock option granted under the Stock
Plan at least six months prior to the change in control would be cancelled in
return for a cash payment equal to the excess of the Determined Value of the
shares of Company Common Stock subject to the option over the aggregate
purchase price of such shares under the terms of the option; (c) all other new
stock options outstanding under the Stock Plan would become immediately and
fully exercisable; (d) all performance share units awarded under the Stock
Plan for the performance cycle in which the change in control occurs would be
deemed to have been earned in full, and a cash payment would be made for each
such performance share unit in an amount equal to the Determined
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Value of a share of Company Common Stock; (e) all previously deferred awards
of performance share units under the Stock Plan would become immediately
payable in the form of a cash payment in an amount equal to the sum of the
Interest Portion (as defined in the Stock Plan) of such awards and the
Determined Value of the number of shares of Company Common Stock corresponding
to the number of units included in the Phantom Share Unit Portion (as defined
in the Stock Plan) of such awards; (f) all benefit equalization units
previously granted under the Stock Plan would become immediately payable in
the form of a cash payment in an amount equal to the Determined Value of the
number of shares of Company Common Stock corresponding to the number of
benefit equalization units credited to the participant; (g) all awards under
the 1990 Annual Incentive Plan for the year in which the change in control
occurs would be deemed to have been earned in full, and would be immediately
payable in the form of a cash payment; and (h) the balance of each
participant's account under the Executive Deferred Compensation Plan would
become immediately payable in full in the form of a cash payment.
The Retirement Plan provides that if the Retirement Plan is terminated
within four years after the occurrence of a change in control, any surplus
funding in the Retirement Plan would be applied (subject to applicable Code
and other tax qualification requirements applicable to the Retirement Plan) to
provide pro rata increases in the accrued pension benefits of all qualified
participants in the Retirement Plan, including the Named Executive Officers.
The supplemental pension agreements with Messrs. Schwarz, Maurer and
Taylor provide that in the event of the involuntary termination of any such
officer's employment following a change in control, such officer would receive
from the Company an immediate lump sum cash payment equal to the actuarial
present value of the supplemental pension that would have been payable to such
officer under the agreement at his normal retirement date if he had remained
employed with the Company until that date, at the rate of annual compensation
in effect for such officer immediately prior to such termination of his
employment.
In addition, under the 1990 Change in Control and Severance Policy, each
of the Named Executive Officers would be entitled to receive severance
benefits in the event of any such Named Executive Officer's involuntary
termination of employment within two years following a change in control. In
such event, each such Named Executive Officer would be entitled to receive a
cash payment in an amount equal to the sum of (a) two times such Named
Executive Officer's then current annual base salary, (b) the average of the
highest three of the previous five years awards to such Named Executive
Officer under the 1990 Annual Incentive Plan and predecessor plan and (c) 25
times such Named Executive Officer's then current weekly base salary.
Benefit Protection Trusts
UST has established the U.S. Trust Corporation Benefits Protection Trust
I and the U.S. Trust Corporation Benefits Protection Trust II, and USTNY has
established the United States Trust Company of New York and Affiliated
Companies Executives Benefits Protection Trust, for the purposes of assisting
UST and USTNY in meeting their obligations under certain of the benefit and
compensation plans maintained by them. As adopted by the Company and New
Trustco, these trusts will cover the benefits described above under "Change in
Control Provisions" that become payable to certain officers (including the
Named Executive Officers) upon the occurrence of a "change in control" as
defined above under "Change in Control Provisions". The U.S. Trust Corporation
Benefits Protection Trust I also will cover benefits payable under the Board
Members' Deferred Compensation Plan with respect to the "Interest Portion" of
a board member's deferred amounts under that plan.
Upon the occurrence of a change in control, the trust funds would be used
to make benefit payments to the officers and board members in accordance with
the provisions of the applicable plans and the trust agreements. However, at
all time prior to payment to the officers and board members, all assets held
in the trusts will remain subject to the claims of the Company's and New
Trustco's respective creditors.
The trusts are intended to qualify as "grantor trusts" with the meaning
of the Code, with the consequence that the Company and New Trustco will be
treated as owners of all of the assets and income of the trusts for federal
income tax purposes.
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No contributions have been made to the trusts as yet. It is anticipated
that following the Merger, a variable premium life insurance policy that UST
presently maintains to fund benefits payable to officers and board members
with respect to the Interest Portion of their deferred amounts under the Stock
Plan, Predecessor Performance Plans and the Board Members' Deferred
Compensation Plan will be contributed to the U.S. Trust Corporation Benefits
Protection Trust I.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
Authorized Capital Stock
In accordance with the Distribution Agreement, UST will appropriately
cause the Company to amend the Certificate of Incorporation of the Company in
effect prior to the Distribution to, among other things, increase the
currently authorized number of shares of common stock of the Company and to
exchange the 100 shares of such common stock currently outstanding for a total
number of shares of Company Common Stock, equal to the total number of shares
of UST Common Stock outstanding immediately prior to the Distribution Record
Date. See "The Distribution -- Terms of the Distribution Agreement". Under the
Restated Certificate, the total number of shares of all classes of stock that
the Company will have authority to issue is 45,000,000 of which 40,000,000 may
be shares of Company Common Stock, and 5,000,000 may be shares of preferred
stock of the Company, par value $1.00 per share (the "Company Preferred
Stock").
Based on the number of shares of UST Common Stock outstanding as of
February 1, 1995 (and assuming the exercise of stock options for 132,691
shares prior to the Time of Distribution), it is estimated that approximately
9,622,000 shares of Company Common Stock will be distributed to UST
stockholders in the Distribution. No shares of the preferred stock of UST, par
value $1.00 per share (the "UST Preferred Stock") were outstanding at February
1, 1995. All the shares of Company Common Stock to be distributed to UST
stockholders in the Distribution will be fully paid and non-assessable.
The Restated Certificate consists of provisions relating to the Company,
including, among others, those relating to Company Common Stock, Company
Preferred Stock, the Stockholder Rights Plan, preemptive rights and
indemnification and insurance, which are substantially similar to the
provisions of the UST Certificate of Incorporation currently in effect. The
following summary describes material provisions of, but does not purport to be
complete and is subject to, and qualified in its entirety by, the Restated
Certificate and the Restated Bylaws attached hereto as Appendix I and Appendix
II, respectively, and by applicable provisions of law.
Company Common Stock
Holders of shares of Company Common Stock will be entitled to one vote
per share and, subject to the voting rights, if any, of any Company Preferred
Stock issued, such voting rights will be exclusive. See "-- Preferred Stock".
Except as provided by law or by the Restated Certificate, any corporate action
other than election of directors must be authorized by a majority of votes
cast at a meeting of stockholders by holders of shares entitled to vote.
Whenever directors are to be elected by the stockholders, they will be elected
at a meeting of the stockholders by a plurality of the votes cast by the
holders of shares entitled to vote. Holders of shares of Company Common Stock
do not have cumulative voting rights for the election of directors, and, as a
result, a holder or group of holders of more than 50% of Company Common Stock
entitled to vote may elect 100% of the Company Board, in which case holders of
the remaining shares of Company Common Stock would be unable to elect any
person as a director.
Holders of shares of Company Common Stock will be entitled, subject to
the rights, if any, of holders of shares of any Company Preferred Stock
issued, to have equal rights to participate in dividends when declared and, in
the event of liquidation, in the net assets of the Company available for
distribution to stockholders. See "-- Preferred Stock". The Company may not
declare any dividends on, or make any payment on account of the purchase,
redemption or other retirement of, Company Common Stock unless full cumulative
dividends, where applicable, have been paid or declared and set apart for
payment upon all outstanding shares of Company Preferred Stock. Holders of
shares of Company Common Stock do not have redemption or sinking
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fund rights, and none of the holders of shares of Company Common Stock is
entitled to preemptive rights or preferential rights to subscribe for shares
of Company Common Stock or any other securities of the Company, except for
certain Series A Participating Cumulative Preferred Stock Purchase Rights (as
defined below) that will be distributed immediately following the Distribution
as a dividend to holders of Company Common Stock, which will be exercisable or
transferable separately from shares of Company Common Stock only upon the
occurrence of certain events including the acquisition by a person or group of
affiliated or associated persons of 20% or more of the outstanding shares of
Company Common Stock. See "-- Stockholder Rights Plan" below. Shares of
Company Common Stock will be fully paid and nonassessable. The Company intends
to apply for the listing of the Company Common Stock on the National Market
System. See "Listing and Trading of Company Common Stock". New Trustco will be
the transfer agent and registrar for the Company Common Stock.
The Restated Certificate will include a "fair price provision" that would
require, as a condition to the consummation of certain business combinations,
including, among others, certain mergers, asset sales, security issuances,
recapitalization and liquidations, involving the Company or its subsidiaries
and certain acquiring persons (namely, a person, entity or specified group
which beneficially owns more than 10% of the voting stock of the Company (such
person or persons, an "Interested Stockholder")), unless the "fair price" and
other procedural requirements of the provision are met, the affirmative vote
of both (i) the holders of at least 80% of the combined voting power of the
then outstanding voting shares of the Company and (ii) the holders of at least
a majority of the combined voting power of the then outstanding voting shares
of the Company held by stockholders who are not Interested Stockholders or
affiliates or associates of Interested Stockholders, in each case voting
together as a single class. Such vote will be in addition to any other
stockholder vote required and is required notwithstanding that no vote may
otherwise be required, or that some lesser percentage may be specified by law,
by the Restated Certificate, by the Restated Bylaws, or otherwise.
Preferred Stock
The Company Board may authorize the issuance of Company Preferred Stock
in one or more series, which series may have such voting powers, if any, and
such designations, preferences and relative, participating, optional or other
special rights, and qualifications, or restrictions thereof, as the Company
Board shall establish in its resolution providing for the issuance of such
series. Any series of Company Preferred Stock issued by the Company may have
dividend, dissolution and other preferences over the Company Common Stock and
may be convertible into shares of Company Common Stock. The Company has no
present plans to issue any Company Preferred Stock. The Company, will,
however, at or immediately following the Time of Distribution, designate a
series of Company Preferred Stock as Series A Participating Cumulative
Preferred Stock (the "Series A Preferred Stock") in connection with its
stockholder rights plan. See "-- Stockholder Rights Plan -- Series A Preferred
Stock" below.
Stockholder Rights Plan
The Rights Agreement
The Company expects that the Company Board will, at or immediately
following the Time of Distribution, declare a dividend distribution of one
Series A Participating Cumulative Preferred Stock Purchase Right (a "Right")
for each outstanding share of Company Common Stock distributed to UST
stockholders pursuant to the Distribution, under a Rights Agreement (the
"Rights Agreement") between the Company and a rights agent, substantially in
the form of the Rights Agreement, dated January 26, 1988, as amended, between
UST and First Chicago Trust Company of New York, as Rights Agent (the "UST
Rights Agreement"). Each Right will entitle the holder to purchase from the
Company one one-hundredth (or 1/100th) of a share of Series A Preferred Stock
(the "Preferred Shares") at a purchase price of $100, subject to adjustment
(the "Purchase Price").
The Rights will not be exercisable or transferable separately from the
shares of Company Common Stock to which they are attached until the earlier of
(i) the date on which a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 20% or more of
the outstanding shares
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of Company Common Stock (such event, a "Triggering Event") or (ii) 10 days
following (A) the date of approval under the Bank Holding Company Act, (B) the
date of notice of nondisapproval under the Change in Bank Control Act or (C)
the expiration, without a notice of disapproval having been issued, of the
prior notification period under the Change in Bank Control Act, in each case
for any person or group of affiliated or associated persons to acquire
beneficial ownership of 25% or more of the outstanding shares of Company
Common Stock (the earlier of such dates being called the "Distribution Date").
The Rights Agreement will provide that, as soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Company Common Stock as
of the close of business on the Distribution Date (and to each initial record
holder of certain Company Common Stock originally issued after the
Distribution Date), and such separate Right Certificates alone will thereafter
evidence the Rights.
The Rights will not be exercisable until the Distribution Date and the
Company anticipates that, pursuant to the Rights Agreement, the Rights will
expire on July 3, 2005 (the "Expiration Date"), unless earlier redeemed by the
Company as described below.
The number of Preferred Shares or other securities issuable upon exercise
of a Right will be subject to adjustment from time to time in the event of (i)
the declaration of a stock dividend payable in Preferred Shares or a
subdivision, combination or reclassification of the Preferred Shares, (ii) the
issuance of certain rights, options or warrants to holders of Company Common
Stock or Equivalent Shares (as defined in the Rights Agreement) to subscribe
for or purchase Company Common Stock or Equivalent Shares at a price per share
less than the then-current market value of such Company Common Stock or
Equivalent Shares or (iii) the distribution to holders of Company Common Stock
or Equivalent Shares of cash (excluding regular periodic cash dividends at a
rate not in excess of 125% of the rate of the last regular cash dividend
theretofore paid) or evidences of indebtedness, assets or securities or
subscription rights, options or warrants (other than those referred to above).
The Purchase Price and the number of Preferred Shares or other securities
issuable upon exercise of the Rights are subject to adjustment from time to
time in the event of the declaration of a stock dividend on the Company Common
Stock payable in Company Common Stock or a subdivision or combination of the
Company Common Stock prior to the Distribution Date. In the event of a
combination of the outstanding Company Common Stock into a smaller number of
Company Common Stock prior to the Distribution Date, the number of Rights
associated with each outstanding Company Common Stock will be proportionately
reduced.
The Preferred Shares will be authorized to be issued in fractions which
are an integral multiple of one one-hundredth (or 1/100th) of a Preferred
Share. The Company may, but is not required to, issue fractions of shares upon
the exercise of Rights, and in lieu of fractional shares, the Company may
issue certificates or utilize a depository arrangement as provided by the
terms of the Rights Agreement and the Preferred Shares and, in the case of
fractions other than one one-hundredth (or 1/100th) of a Preferred Share or
integral multiples thereof, may make a cash payment based on the market price
of such shares.
In the event the Company is acquired in a merger or other business
combination or 50% or more of its assets or assets representing 50% or more of
its earning power are sold, leased, exchanged or otherwise transferred (in one
or more transactions) to a publicly traded corporation, each Right will
entitle its holder to purchase, other than Rights beneficially owned by an
Acquiring Person (which Rights will be void), for the Purchase Price, that
number of common shares of such corporation which at the time of the
transaction would have a market value of twice the Purchase Price. In the
event the Company is acquired in a merger or other business combination or 50%
or more of its assets or assets representing 50% or more of the earning power
of the Company are sold, leased, exchanged or otherwise transferred (in one or
more transactions) to an entity that is not a publicly traded corporation,
each Right will entitle its holder to purchase, other than Rights beneficially
owned by an Acquiring Person (which Rights will be void), for the Purchase
Price, at such holder's option, (i) that number of shares of such entity (or,
at such holder's option, of the surviving corporation in such acquisition,
which could be the Company) which at the time of the transaction would have a
book value of twice the Purchase Price or (ii) if such entity has an affiliate
which has publicly traded
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common shares, that number of common shares of such affiliate which at the
time of the transaction would have a market value of twice the Purchase Price.
In the event that any person becomes an Acquiring Person, each holder of
a Right, other than Rights beneficially owned by an Acquiring Person (which
Rights will be void), will thereafter have the right, upon exercise, to
purchase for the Purchase Price, that number of one one-hundredths (or
1/100ths) of a Preferred Share equal in number to the number of shares of
Company Common Stock having a value equal to two times the Purchase Price of
the Right.
In the event that any Acquiring Person or any affiliate or associate of
any Acquiring Person merges or otherwise combines with the Company in a
transaction in which the Company is the surviving corporation and all of the
Company Common Stock remains outstanding and unchanged, each holder of a
Right, other than Rights beneficially owned by an Acquiring Person (which
Rights will be void), will thereafter have the right to acquire, upon
exercise, shares of common stock of the acquiring company having a value equal
to two times the Purchase Price of the Right.
In addition, the Company Board may, at its option, after such time as
there is an Acquiring Person, and provided that such Acquiring Person is not
the beneficial owner of 50% or more of the outstanding shares of Company
Common Stock, exchange all or part of the Rights, other than Rights
beneficially owned by such Acquiring Person (which rights will be void), for
such number of shares of Company Common Stock equal to the aggregate market
value on the date of such exchange equal to the Purchase Price.
The Rights will be redeemable, for cash or other consideration deemed
appropriate by the Company Board, at $0.01 per Right, subject to adjustment,
at any time (the "Redemption Price"); provided, that upon the earlier of the
date of (i) notice of approval under the Bank Holding Company Act, (ii) notice
of nondisapproval under the Change in Bank Control Act or (iii) the
expiration, without a notice of disapproval having been issued, of the prior
notification period under the Change in Bank Control Act, in each case for any
person or group of affiliated or associated persons to acquire beneficial
ownership of 25% or more of the outstanding shares of Company Common Stock,
and thereafter until the earliest of (A) the occurrence of a Triggering Event
or (B) the Expiration Date, the Rights may be redeemed only if (1) there are
disinterested directors then in office and (2) the Company Board, with the
concurrence of a majority of the disinterested directors then in office,
determines that such redemption is, in their judgment, in the best interests
of the Company and its stockholders.
Immediately upon the action of the Company Board electing to redeem the
Rights, the Company will make an announcement thereof, and upon such election,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
At any time prior to the Distribution Date, the Company may, without the
approval of any holder of the Rights, supplement or amend any provision of the
Rights Agreement (including the date on which the Distribution Date shall
occur), except that no supplement or amendment shall be made which reduces the
Redemption Price or provides for an earlier Expiration Date. However, at any
time when any person has received notice of approval under the Bank Holding
Company Act or notice of nondisapproval under the Change in Bank Control Act,
to acquire beneficial ownership of 25% or more of the outstanding shares of
Company Common Stock, the Rights Agreement may be supplemented or amended only
if the Company Board, with the concurrence of a majority of disinterested
directors, determines that such supplement or amendment is in the best
interests of the Company and its stockholders.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become discount Rights unless the offer
is conditioned on a substantial number of Rights being acquired.
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Series A Preferred Stock
The Company will be authorized to issue Series A Preferred Stock in
connection with the Rights issued under the Rights Agreement. See
"-- Authorized Capital Stock" and "-- Preferred Stock". The holders of Series
A Preferred Stock will be entitled to all the rights and privileges set forth
in the Restated Certificate, certain features of which are described below.
The holders of Series A Preferred Stock will be entitled to receive (i)
quarterly cumulative dividends in an amount per share equal to $25 less
dividends received pursuant to the following clause (ii) and (ii) cash
dividends on each payment date for cash dividends on Company Common Stock in
an amount per share equal to the Formula Number (as defined below) then in
effect times the per share amount of all cash dividends then to be paid on
each share of Company Common Stock.
Holders of Series A Preferred Stock will be entitled to vote on each
matter on which holders of Company Common Stock will be entitled to vote, and
will have the number of votes equal to the Formula Number then in effect for
each share of Series A Preferred Stock held. Holders of Series A Preferred
Stock will have certain special voting rights in the election of directors
when the equivalent of six quarterly dividends are in default. Whenever
quarterly dividends or distributions on Series A Preferred Stock are in
arrears, the Company's right to declare or pay dividends or other
distributions on, and to redeem or purchase any shares of stock ranking junior
to or on a parity with Series A Preferred Stock is subject to certain
restrictions.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of any Series A Preferred Stock will be
entitled to receive, before any distribution is made to holders of shares of
stock ranking junior to Series A Preferred Stock or any distribution (other
than a ratable distribution) is made to the holders of stock ranking on a
parity with Series A Preferred Stock, an amount equal to the accrued dividends
thereon plus the greater of (i) $100 per share or (ii) an amount per share
equal to the Formula Number then in effect times the amount per share to be
distributed to holders of Company Common Stock.
Series A Preferred Stock will be redeemable, in whole, at the option of
the Company Board, at any time at which the Company Board determines that no
person beneficially owns more than 10% of the outstanding shares of capital
stock of the Company generally entitled to vote in the election of directors
of the Company, at a cash price equal to 125% of the product of the Formula
Number times the average market price of Company Common Stock during the
preceding 30 days plus accrued and unpaid dividends.
The initial Formula Number will be 100 (the "Formula Number"). In the
event the Company declares a dividend on the Company Common Stock payable in
Company Common Stock, or effects the subdivision, combination or
reclassification of the outstanding Company Common Stock (including any
reclassification in connection with a merger in which the Company is the
surviving corporation), the Formula Number will be appropriately adjusted. In
the event of a consolidation, merger or other transaction in which the Company
Common Stock is exchanged for or converted into other securities, cash or any
other property, Series A Preferred Stock will be similarly exchanged or
converted in an amount per share equal to the Formula Number then in effect
times the amount per share of securities, cash or other property into which
each share of Company Common Stock is changed or converted.
Series A Preferred Stock will be issuable in whole shares or in any
fraction of a share that is one one-hundredth (or 1/100th) of a share or any
integral multiple of such fraction, subject to certain adjustments. In lieu of
issuing fractional shares, the Company may issue certificates of depositary
receipts evidencing such authorized fractions of shares or, in the case of
fractions other than one one-hundredth (or 1/100th) and integral multiples
thereof, pay registered holders cash equal to the same fraction of the current
market value of a share of Company Preferred Stock (if any are outstanding) or
the equivalent number of shares of Company Common Stock.
No Preemptive Rights
No holder of any stock of any class of the Company authorized at the time
of Distribution will then have any preemptive right to subscribe to any
securities of any kind or class.
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Description of Certain Statutory, Charter and Bylaw Provisions
Certain Statutory Provisions of the NYBCL
Section 912 of the New York Business Corporation Law ("NYBCL") governs
certain transactions between New York corporations and interested
stockholders. Under Section 912 of the NYBCL, an "interested stockholder" is
one that owns at least 20% of the outstanding voting shares of a corporation.
A New York corporation cannot engage in a business combination with an
interested stockholder for five years following the acquisition date of an
interested stockholder's shares unless the directors approve the business
combination or stock acquisition before the stockholder's stock acquisition
date. Following the five year period, a corporation cannot enter a business
combination with an interested stockholder unless (i) the directors approve
the business combination or the stockholder's stock acquisition before the
stockholder's stock acquisition date (ii) at a meeting called for such
purpose, the holders of a majority of shares not beneficially owned by an
interested stockholder or an associate or affiliate of an interested
stockholder approve the business combination or (iii) the business combination
satisfies certain price and procedural requirements. Pursuant to Section
912(d) of the NYBCL, such restrictions do not apply to a corporation that has
exempted itself by amendment to its bylaws approved by a vote of the majority
of holders of outstanding voting stock, excluding the voting stock of an
interested stockholder or an associate or affiliate of an interested
stockholder. Such an amendment will not become effective for 18 months
following its adoption and will not apply to a business combination with an
interested stockholder whose stock acquisition date is on or before the
effective date of the amendment. The Restated Certificate contains specific
provisions governing certain transactions between the Company and interested
stockholders. See "-- Company Common Stock".
Classified Board of Directors; Nomination of Directors
The provisions of the Restated Bylaws will be substantially similar to
the provisions of UST's Bylaws, as amended, currently in effect (the "UST
Bylaws"). The Restated Bylaws provide for the Company's Board of Directors to
be divided into three classes of directors, as nearly equal as possible,
serving staggered three-year terms. As a result, approximately one-third of
the members of the Company Board will be elected each year. See
"Management -- Directors". This provision could prevent a party who acquires
outstanding voting stock of the Company having majority voting power from
obtaining control of the Company Board until the second annual stockholders'
meeting following the date the acquiror obtains the controlling interest, and
thus could have the effect of discouraging a potential acquiror from making a
tender offer or otherwise attempting to obtain control of the Company.
Accordingly, this provision could increase the likelihood that incumbent
directors will retain their positions. In addition, the Restated Bylaws will
contain a provision whereby Company stockholders may nominate directors for
election to the Company Board provided that written notice of such election
conforms to certain timing and content restrictions set forth in the Restated
Bylaws (the UST Bylaws contain no such provision governing stockholder
nominations).
Number of Directors; Removal; Vacancies
The Restated Bylaws provide that the number of directors, in any case not
less than nine, will be determined from time to time by a majority of the
entire Company Board or at any annual or special meeting of the stockholders
entitled to vote for the election of directors. Newly created directorships
resulting from an increase in the number of directors and vacancies occurring
in the Company Board for any reason may be filled either by vote of the
stockholders or by vote of a majority of the directors then in office, even if
such directors do not constitute a quorum. An election for a directorship
filled by a majority vote of the Company Board will occur at the next
stockholder meeting including the election of directors as regular business.
The Restated Bylaws further provide that any director may be removed for cause
either by vote of the stockholders or by a majority of the entire Company
Board.
Annual Meetings' Stockholder Action by Unanimous Consent; Special
Meetings
The annual meeting of the stockholders of the Company for the election of
directors and the transaction of such other business as may properly come
before the meeting will be held on a date which is no later than
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six months after the close of the Company's preceding fiscal year (but in no
event later than thirteen months after the last annual meeting) and at such
place within or without the State of New York as may be fixed by the Company
Board.
The Restated Bylaws provide that stockholder action may be taken at an
annual or special meeting of stockholders and that action may be taken by the
written consent of stockholders in lieu of a meeting setting forth the action
so taken and signed by the holders of all outstanding shares entitled to vote
thereon. The Restated Bylaws will provide that special meetings of the
Company's stockholders may only be called by the Company Board or by the
Chairman of the Board, by the President or by a Vice Chairman of the Board.
Only business pertaining to the purpose of the special meeting, as specified
in the call of the meeting, can be transacted at such meeting. Stockholders
will not be entitled to call a special meeting or to require the Company Board
to call a special meeting of stockholders.
Amendment of Certain Charter and Bylaw Provisions
The Restated Bylaws provide that the Company Board may amend or repeal
and new Bylaws may be adopted (i) by vote of the holders of the shares at the
time entitled to vote in the election of directors at any annual meeting of
the stockholders or at any special meeting of the stockholders called for that
purpose or (ii) by the Company Board at any meeting of the Company Board,
except in the case of any particular provision at any time adopted by the
stockholders and specified as not subject to amendment or repeal by the
Company Board.
Preferred Stock
Under the Restated Certificate, the Company Board will have the authority
to provide by resolution for the issuance of shares of one or more series of
Company Preferred Stock and to fix the terms and conditions of each such
series. See "Description of Capital Stock of the Company -- Preferred Stock".
The authorized shares of Company Preferred Stock, as well as authorized but
unissued shares of Company Common Stock, will be available for issuance
without further action by the Company's stockholders, unless stockholder
action is required by applicable law or by the rules of a stock exchange on
which any series of the Company's stock may then be listed.
These provisions will give the Company Board the power to approve the
issuance of a series of Company Preferred Stock that could, depending on its
terms, either impede or facilitate the completion of a merger, tender offer or
other takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights which
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied.
Indemnification and Insurance
Section 722 of the NYBCL authorizes the indemnification of officers and
directors if such person (i) acted in good faith, (ii) in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and (iii) in a criminal proceeding, without reasonable cause to
believe his or her conduct was unlawful. Under Section 723 of the NYBCL an
officer or director who successfully defends a proceeding is entitled to
indemnification. In certain other circumstances, the corporation must find
that the director or officer met an appropriate standard of conduct. The
corporation may make this finding through (i) the board, acting as a quorum of
directors not parties to the action, (ii) in certain circumstances, the board
acting upon the written opinion of independent legal counsel or (iii) in
certain circumstances, the stockholders. In some situations, a court, pursuant
to Section 724 of the NYBCL, may award indemnification. Section 725 of the
NYBCL sets out the conditions for advancing the payment of expenses and the
circumstances in which the corporation must notify stockholders when it makes
indemnification payments. Section 721 provides that the indemnification rights
granted under the NYBCL are not exclusive of other indemnification rights as
long as such other rights do not attach when a judgment or other final
adjudication establishes that a director or officer (i) acted in bad faith or
with active and deliberate dishonesty and that
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such acts were material to the cause of action adjudicated or (ii) gained a
personal financial or other advantage to which the director or officer was not
legally entitled.
The Restated Bylaws will provide that the Company will indemnify any
current or past director or officer who is party to an actual or threatened
action by virtue of such status. Under the Restated Bylaws, the Company will
not (i) indemnify any director or officer when a final judgment establishes
that the director or officer (A) acted in bad faith or with active and
deliberate dishonesty and that such acts were material to the cause of action
adjudicated or (B) gained a personal financial or other advantage to which the
director or officer was not legally entitled and (ii) be required to indemnify
any director or officer when (A) the actual or threatened action was settled
without final adjudication or without the consent of the Company or (B) the
party is entitled to indemnification pursuant to an insurance policy without
regard to the indemnification provisions of the Restated Bylaws. Any amendment
which prohibits or otherwise limits indemnification rights will not affect any
party until 60 days following his or her notice of such amendment and will not
apply to any act or omission occurring before such 60th day. The Restated
Bylaws also permit the Company to enter into indemnification agreements with
directors, officers and employees. The Restated Bylaws further state that the
indemnification rights provided thereunder are not exclusive of other
indemnification rights protecting a party entitled to indemnification under
the Restated Bylaws.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form 10 under the Exchange Act with respect to the shares of Company Common
Stock to be distributed to UST stockholders in the Distribution. This
Information Statement, while forming a part of the Company Form 10, does not
contain all of the information set forth in the Company Form 10 and the
exhibits and schedules thereto.
The Company Form 10 and the exhibits thereto are available for inspection
and copying at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Regional Offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information will be
obtainable by mail from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the Commission
that will be available for inspection and copying at the Commission's public
reference facilities referred to above. Copies of such material will be
obtainable by mail at prescribed rates by writing to the Public Reference
Branch of the Commission at the address referred to above. In addition, it is
expected that reports, proxy statements and other information concerning the
Company will be available for inspection at the offices of the NASD, 1735 K
Street, N.W., Washington, D.C. 20006.
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<PAGE>
<TABLE>
INDEX OF DEFINED TERMS
Term Page
- -------------------------------------------------------------------------------------- ----
<S> <C>
Acquired Person....................................................................... 26
Acquiring Person...................................................................... 85
Agency Securities..................................................................... 37
Asset Management System............................................................... 19
Asset Transfers....................................................................... 22
Audit Committee....................................................................... 68
Average Value Per Share of UST Common Stock........................................... 81
Back Office Services.................................................................. 29
Bank Holding Company Act.............................................................. 9
Bank Merger........................................................................... 29
Bank Processing Services.............................................................. 29
BEUs.................................................................................. 81
BIF................................................................................... 14
Board of Governors.................................................................... 8
Board of Trustees..................................................................... 68
Boards................................................................................ 68
Broadway Lease........................................................................ 19
Bundled Services...................................................................... 27
Campbell.............................................................................. 50
Capital Notes......................................................................... 56
CCFA.................................................................................. 17
Change of Control..................................................................... 27
Chase................................................................................. 1
Chase Acquired Business............................................................... 1
Chase Assets.......................................................................... 19
Chase Common Stock.................................................................... 4
Chase Liabilities..................................................................... 20
Chase Parties......................................................................... 24
Chubb................................................................................. 12
Closing Date.......................................................................... 7
CMB................................................................................... 29
CMOs.................................................................................. 55
Code.................................................................................. 28
Code Limitations...................................................................... 71
Commission............................................................................ 72
Company............................................................................... 1
Company Assets........................................................................ 22
Company Board......................................................................... 5
Company Common Stock.................................................................. 1
Company Form 10....................................................................... 1
Company Liabilities................................................................... 23
Company Preferred Stock............................................................... 84
Compensation Committee................................................................ 68
Contribution Agreement................................................................ 1
Contribution Asset Transfers.......................................................... 19
Contribution Assets................................................................... 19
Contribution Liabilities.............................................................. 19
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<PAGE>
Term Page
- -------------------------------------------------------------------------------------- ----
Core Businesses....................................................................... 1
CTC................................................................................... 11
Debentures............................................................................ 17
Deductible Amount..................................................................... 26
Default............................................................................... 14
Delafield............................................................................. 50
Delayed Asset......................................................................... 20
Delayed Liability..................................................................... 20
Disposition........................................................................... 31
Distribution.......................................................................... 1
Distribution Agreement................................................................ 1
Distribution Asset Transfers.......................................................... 22
Distribution Assets................................................................... 22
Distribution Date..................................................................... 86
Distribution Documents................................................................ 4
Distribution Liabilities.............................................................. 23
Distribution Record Date.............................................................. 1
Effective Time........................................................................ 4
EITF 94-3............................................................................. 32
ESOP Contributions.................................................................... 77
ESOP Loan............................................................................. 77
Exchange Act.......................................................................... 1
Executive Committee................................................................... 68
Executive Deferred Compensation Plan.................................................. 82
Expiration Date....................................................................... 86
Family Office......................................................................... 27
FAS 114............................................................................... 60
FAS 118............................................................................... 60
FAS 119............................................................................... 60
FDIC.................................................................................. 14
FDICIA................................................................................ 14
FIRREA................................................................................ 14
Fixed Rate GNMAs...................................................................... 55
Formula Number........................................................................ 88
FRAs.................................................................................. 54
401(k) Contributions.................................................................. 77
401(k) Plan and ESOP.................................................................. 10
GCC................................................................................... 74
GNMA.................................................................................. 55
GNMA ARMs............................................................................. 55
IAS................................................................................... 51
Indenture............................................................................. 17
Interested Stockholder................................................................ 85
Internal Reorganization............................................................... 3
Interstate Act........................................................................ 16
Investable Deposits................................................................... 37
Linter Group.......................................................................... 17
Linter Subsidiaries................................................................... 17
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<PAGE>
Term Page
- -------------------------------------------------------------------------------------- ----
Linter Textiles....................................................................... 17
Merger................................................................................ 1
Merger Agreement...................................................................... 1
MF Service Company.................................................................... 23
MF Service Company Retained Liabilities............................................... 23
mortgage loans........................................................................ 56
mortgage securities................................................................... 56
Named Executive Officers.............................................................. 71
NASD.................................................................................. 24
National Market System................................................................ 1
New Trustco........................................................................... 1
New Units............................................................................. 81
New UST Parties....................................................................... 24
1990 Annual Incentive Plan............................................................ 77
NYBCL................................................................................. 89
Pacific Northwest..................................................................... 44
Post Closing Covenants Agreement...................................................... 4
Post-Merger Period.................................................................... 78
Predecessor Performance Plans......................................................... 80
Preferred Shares...................................................................... 85
Pre-Merger Period..................................................................... 78
Private Letter Ruling................................................................. 5
Pro Forma Statements.................................................................. 32
Processing Business................................................................... 18
Proxy Statement-Prospectus............................................................ 1
PSUs.................................................................................. 80
Purchase Price........................................................................ 85
Redemption Price...................................................................... 87
Related Back Office................................................................... 18
Required Consent...................................................................... 20
Restated Bylaws....................................................................... 5
Restated Certificate.................................................................. 5
Restricted Processing Business........................................................ 27
Retention Amount...................................................................... 23
Retirement Plan....................................................................... 76
Right................................................................................. 85
Rights Agreement...................................................................... 85
Right Certificates.................................................................... 86
Securities Act........................................................................ 11
Series A Preferred Stock.............................................................. 85
Service............................................................................... 5
Services Agreement.................................................................... 6
Stock Plan............................................................................ 77
Tax Allocation Agreement.............................................................. 4
Tier 1 capital........................................................................ 15
Tier 2 capital........................................................................ 15
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Term Page
- -------------------------------------------------------------------------------------- ----
Time of Distribution.................................................................. 1
Treasury Securities................................................................... 37
Triggering Event...................................................................... 86
UST................................................................................... 1
UST Board............................................................................. 1
UST Bylaws............................................................................ 89
UST Common Stock...................................................................... 1
U.S.T. Corp. Stock Fund............................................................... 77
UST Directors' Option Plan............................................................ 69
UST Preferred Stock................................................................... 84
UST Rights Agreement.................................................................. 85
USTNY................................................................................. 1
UST-WY................................................................................ 23
UST-WY Retained Liabilities........................................................... 23
</TABLE>
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APPENDIX I
<PAGE>
APPENDIX I
RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW USTC HOLDINGS CORPORATION
Under Section 807 of the
Business Corporation Law
The undersigned, being the Chairman of the Board and the Secretary,
respectively, of NEW USTC HOLDINGS CORPORATION (the "Corporation"), hereby
certify:
1. The name of the Corporation, which is the name under which it was
formed, is NEW USTC HOLDINGS CORPORATION.
2. The certificate of incorporation of the Corporation was filed by the
Department of State on January 20, 1995 (the "Certificate of Incorporation").
3. The Certificate of Incorporation is hereby amended to effect the
following changes authorized by Article 8 of the Business Corporation Law:
(a) To make additions to the corporate purposes of the Corporation, as
set forth in Article FIRST of this restated certificate of incorporation (this
"Restated Certificate of Incorporation");
(b) To grant authority to the Board of Directors to establish and
designate the relative rights, preferences and limitations of each class of
shares, as set forth in Article FOURTH of this Restated Certificate of
Incorporation;
(c) To establish a series of Preferred Shares of the Corporation, the
Series A Participating Cumulative Preferred Shares, and to designate the
rights, preferences and limitations of such shares, as set forth in Article
FOURTH of this Restated Certificate of Incorporation;
(d) To increase the aggregate number of shares which the Corporation
shall have authority to issue from 100 Common Shares, par value $1 per share,
to 45,000,000 shares, consisting of 40,000,000 Common Shares, par value $1 per
share and 5,000,000 Preferred Shares, par value $1 per share, as set forth in
Article FOURTH of this Restated Certificate of Incorporation;
(e) To add a new Article FIFTH designating no preferential, preemptive or
other subscription right for shares issued by the Corporation;
(f) To add a new Article SEVENTH designating the first calendar year for
reporting by the Corporation under certain provisions of the Tax Law; and
(g) To add a new Article EIGHTH relating to transactions between the
Corporation and interested shareholders.
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<PAGE>
4. The text of the Certificate of Incorporation is hereby amended and
restated to read as herein set forth in full:
RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW USTC HOLDINGS CORPORATION
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
FIRST: The name of the Corporation is NEW USTC HOLDINGS CORPORATION.
SECOND: The purpose or purposes for which the Corporation is formed are
to engage in any lawful act or activity for which corporations may be
organized under the Business Corporation Law, to engage in the business of a
bank holding company under the Federal Bank Holding Company Act of 1956, as
heretofore amended and as the same may hereafter be amended (the "Bank Holding
Company Act"), and to engage in any lawful act or activity which is or
hereafter may be permitted to be performed by a bank holding company under the
Bank Holding Company Act; provided that the Corporation is not formed to
engage in any activity requiring the consent or approval of any state
official, department, board, agency or other body without such consent or
approval first being obtained.
THIRD: The office of the Corporation in the State of New York is to be
located in the City and County of New York.
FOURTH: The aggregate number of shares of all classes which the
Corporation shall have the authority to issue is 45,000,000 shares consisting
of 40,000,000 Common Shares, par value $1 per share, and 5,000,000 Preferred
Shares, par value $1 per share.
The designations and the relative rights, preferences and limitations of
the shares of each class, and the authority hereby vested in the Board of
Directors of the Corporation to establish and to fix the numbers, designations
and relative rights, preferences and limitations of each series of Preferred
Shares, are as follows:
1. The Preferred Shares may be issued from time to time by the Board of
Directors in one or more series and, subject only to the provisions of this
Article FOURTH and the limitations prescribed by law, the Board of Directors
is expressly authorized, prior to issuance, in the resolution or resolutions
providing for the issue of, or providing for a change in the number of, shares
of any particular series, and by filing a certificate of amendment of the
Certificate of Incorporation of the Corporation pursuant to the Business
Corporation Law, to establish or change the number of shares to be included in
each such series and to fix the designation and relative voting, dividend,
liquidation and other rights, preferences and limitations of the shares of
each such series. The authority of the Board of Directors with respect to each
series shall include, but shall not be limited to, determination of the
following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series (provided that the aggregate number of shares
constituting all series of Preferred Shares shall not exceed the aggregate
number of Preferred Shares authorized above);
(b) the times at which and the conditions under which dividends shall be
payable on shares of such series, the annual dividend rate thereon, whether
dividends shall be cumulative and, if so, from which date or dates, and the
status of such dividends as participating or non-participating;
(c) whether the shares of such series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or dates upon and
after which such shares shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares of such
series pursuant to a sinking fund or redemption or purchase account;
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<PAGE>
(e) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or shares of any series
of any class, and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment thereof, if any;
(f) whether the shares of such series shall have voting rights, in
addition to the voting rights otherwise provided by law, and, if so, the terms
of such voting rights;
(g) the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation; and
(h) any other relative rights, preferences and limitations of such
series.
2. All Preferred Shares shall be of equal rank with each other regardless
of series. In case the stated dividends and the amounts payable on liquidation
are not paid in full, the Preferred Shares of all series shall share ratably
in the payment of dividends including accumulations, if any, in accordance
with the sums which would be payable on such shares if all dividends were
declared and paid in full, and in any distribution of assets other than by way
of dividends in accordance with the sums which would be payable in such
distribution if all sums payable were discharged in full.
3. The Preferred Shares of any one series shall be identical with each
other in all respects except as to the dates from which cumulative dividends,
if any, thereon shall be cumulative.
4. Subject to the rights of the Preferred Shares, dividends may be paid
upon the Common Shares as and when declared by the Board of Directors out of
any funds legally available therefor.
5. Upon any liquidation, dissolution or winding up of the affairs of the
Corporation (which shall not be deemed to include a consolidation or merger of
the Corporation, or the sale of all or substantially all of the Corporation's
assets, into, with or to any other corporation or Corporations), whether
voluntary or involuntary, and after the holders of the Preferred Shares shall
have been paid in full the amounts, if any, to which they respectively shall
be entitled or provision for such payment shall have been made, the remaining
net assets of the Corporation shall be distributed pro rata to the holders of
the Common Shares.
6. There is hereby established a series of the Corporation's authorized
Preferred Shares, to be designated as the Series A Participating Cumulative
Preferred Shares, par value $1 per share. The relative rights, preferences and
limitations of the Series A Preferred Shares, insofar as not already fixed by
any other provision of this Certificate of Incorporation shall, as fixed by
the Board of Directors of the Corporation in the exercise of authority
conferred by this Certificate of Incorporation, and as permitted by Section
502 of the Business Corporation Law, be as follows:
(i) Designation and Number of Shares. The shares of such series shall be
designated as "Series A Participating Cumulative Preferred Shares" (the
"Series A Preferred Shares"). The par value of each share of the Series A
Preferred Shares shall be $1. The number of shares initially constituting the
Series A Preferred Shares shall be 300,000; provided, however, that the number
of Series A Preferred Shares may be increased, by an amendment of this
paragraph (i) of this Section 6, approved by the Board of Directors of the
Corporation, if within the authority of the Board of Directors of the
Corporation under Article FOURTH of the Certificate of Incorporation, to such
greater number of Series A Preferred Shares as are at any time issuable upon
exercise of the Rights (the "Rights") issued pursuant to the Rights Agreement
dated as of , 1995, between the Corporation and First Chicago Trust Company of
New York, as Rights Agent (the "Rights Agreement").
(ii) Dividends or Distributions.
(a) subject to the prior and superior rights of the holders of shares of
any other series of Preferred Shares or other class or series of capital stock
of the Corporation ranking prior and superior to the Series A Preferred Shares
with respect to dividends, the holders of shares of the Series A Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor,
(1) quarterly dividends payable in cash on the first day of March, June,
September and
I-3
<PAGE>
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or a fraction of a share of the
Series A Preferred Shares, in the amount of $25 per whole share (rounded to
the nearest cent) less the amount of all cash dividends declared on the Series
A Preferred Shares pursuant to the following clause (2) since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of the Series A Preferred Shares, and (3) dividends
payable in cash on the payment date for each cash dividend declared on the
Common Shares in an amount per whole share (rounded to the nearest cent) equal
to the Formula Number then in effect times the cash dividends then to be paid
on each Common Share. In addition, if the Corporation shall pay any dividend
or make any distribution on the Common Shares payable in assets, securities or
other forms of noncash consideration (other than dividends or distributions
solely in Common Shares), then, in each such case, the Corporation shall
simultaneously pay or make on each outstanding whole share of the Series A
Preferred Shares a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each Common
Share. As used in this Section 6, the "Formula Number" shall be 100; provided,
however, that if at any time after , 1995, the Corporation shall (i) declare
or pay any dividend on the Common Shares payable in Common Shares or make any
distribution on the Common Shares in Common Shares, (ii) subdivide (by a stock
split or otherwise) the outstanding Common Shares into a larger number of
Common Shares or (iii) combine (by a reverse stock split or otherwise) the
outstanding Common Shares into a smaller number of Common Shares, then in each
such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of Common Shares that are
outstanding immediately after such event and the denominator of which is the
number of Common Shares that are outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided, further,
that if at any time after , 1995, the Corporation shall issue any
shares of its capital stock in a reclassification or change of the outstanding
Common Shares (including any such reclassification or change in connection
with a merger in which the Corporation is the surviving corporation), then in
each such event the Formula Number shall be appropriately adjusted to reflect
such reclassification or change;
(b) the Corporation shall declare a dividend or distribution on the
Series A Preferred Shares as provided in paragraph (ii)(a) above immediately
prior to or at the same time it declares a dividend or distribution on the
Common Shares (other than a dividend or distribution solely in Common Shares);
provided, however, that, in the event no dividend or distribution (other than
a dividend or distribution in Common Shares) shall have been declared on the
Common Shares during the period between any Quarterly Dividend Payment Date
and the next Quarterly Dividend Payment Date, a dividend of $25 per share on
the Series A Preferred Shares shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date. The Board of Directors may fix a record date
for the determination of holders of shares of Series A Preferred Shares
entitled to receive a dividend or distribution declared thereon, which record
date shall be the same as the record date for any corresponding dividend or
distribution on the Common Shares;
(c) dividends shall begin to accrue and be cumulative on outstanding
Series A Preferred Shares from and after the Quarterly Dividend Payment Date
next preceding the date of original issue of such Series A Preferred Shares;
provided, however, that dividends on Series A Preferred Shares which are
originally issued after the record date for the determination of holders of
Series A Preferred Shares entitled to receive a quarterly dividend and on or
prior to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on Series A Preferred Shares which
are originally issued prior to the record date for the first Quarterly
Dividend Payment, shall be calculated as if cumulative from and after the
March 1, June 1, September 1 or December 1, as the case may be, next preceding
the date of original issuance of such Series A Preferred Shares. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Preferred Shares in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding;
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(d) so long as any shares of the Series A Preferred Shares are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Shares
unless, in each case, the dividend required by this paragraph (ii) to be
declared on the Series A Preferred Shares shall have been declared and paid or
set apart;
(e) the holders of the shares of Series A Preferred Shares shall not be
entitled to receive any dividends or other distributions except as provided
herein.
(iii) Voting Rights. The holders of shares of Series A Preferred Shares
shall have the following voting rights:
(a) each holder of Series A Preferred Shares shall be entitled to a
number of votes equal to the Formula Number then in effect, for each share of
the Series A Preferred Shares held of record on each matter on which holders
of the Common Shares or shareholders generally are entitled to vote,
multiplied by the number of votes per share which the holders of the Common
Shares or shareholders generally then have with respect to such matter;
(b) except as otherwise provided herein or by applicable law, the holders
of shares of Series A Preferred Shares and the holders of shares of Common
Shares shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of shareholders of
the Corporation;
(c) if at the time of any annual meeting of shareholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Shares are
in default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two, subject to any limitation set forth in
this Certificate of Incorporation on the maximum number of directors then
allowable. In addition to voting together with the holders of Common Shares
for the election of other directors of the Corporation, the holders of record
of the Series A Preferred Shares, voting separately as a class to the
exclusion of the holders of Common Shares, shall be entitled at said meeting
of shareholders (and at each subsequent annual meeting of shareholders),
unless all dividends in arrears have been paid or declared and set apart for
payment prior thereto, to vote for the election of such additional directors,
if any, of the Corporation, the holders of any Series A Preferred Shares being
entitled to cast a number of votes per share of the Series A Preferred Shares
equal to the Formula Number. Until the default in payments of all dividends
which permitted the election of said directors shall cease to exist any
director who shall have been so elected pursuant to the next preceding
sentence may be removed at any time by, and be removed without cause only by,
the affirmative vote of the holders of the Series A Preferred Shares at the
time entitled to cast a majority of the votes entitled to be cast for the
election of any such director at a special meeting of such holders called for
that purpose, and any vacancy thereby created may be filled by the vote of
such holders. If and when such default shall cease to exist, the holders of
the Series A Preferred Shares shall be divested of the foregoing special
voting rights, subject to revesting in the event of each and every subsequent
like default in payments of dividends. Upon the termination of the foregoing
special voting rights, the terms of office of all persons who may have been
elected director pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of Directors
shall be reduced by two or such other number of directors as shall have been
added pursuant to the provisions of this subsection (c). The voting rights
granted by this subsection (c) shall be in addition to any other voting rights
granted to the holders of the Series A Preferred Shares in this paragraph
(iii);
(d) except as provided herein, in paragraph (xi) or by applicable law,
holders of Series A Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for authorizing or
taking any corporate action.
(iv) Certain Restrictions.
(a) whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Shares as provided in paragraph (ii) of this
Section 6 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Preferred Shares outstanding shall have been paid in full, the Corporation
shall not
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(1) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Shares;
(2) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Shares,
except dividends paid ratably on the Series A Preferred Shares and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares provided that
the Corporation may at any time redeem, purchase or otherwise acquire shares
of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Shares; or
(4) purchase or otherwise acquire for consideration any shares of Series
A Preferred Shares, or any shares of stock ranking on a parity with the Series
A Preferred Shares, except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or classes;
(b) the Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (a) of this
paragraph (iv), purchase or otherwise acquire such shares at such time and in
such manner.
(v) Liquidation Rights. Upon the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, no distribution shall be
made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution, or winding up) to the Series A
Preferred Shares unless, prior thereto, the holders of Series A Preferred
Shares shall have received an amount equal to the accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment, plus an amount equal to the greater of (x) $100 per share or (y) an
aggregate amount per share equal to the Formula Number then in effect times
the aggregate amount to be distributed per share to holders of Common Shares,
or (2) to the holders of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred
Shares, except distributions made ratably on the Series A Preferred Shares and
all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up.
(vi) Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
Common Shares are exchanged for or changed into other stock or securities,
cash or any other property, then in any such case the then outstanding shares
of Series A Preferred Shares shall at the same time be similarly exchanged or
changed in an amount per share equal to the Formula Number then in effect
times the aggregate amount of stock, securities, cash or any other property
(payable in kind), as the case may be, into which or for which each Common
Share is exchanged or changed.
(vii) Redemption; No Sinking Fund.
(a) the Series A Preferred Shares shall not be redeemable at the option
of the Corporation except as set forth in this paragraph (vii). The
outstanding Series A Preferred Shares may be redeemed at the option of the
Board of Directors as a whole, but not in part, at any time at which, in the
good faith determination of the Board of Directors no person beneficially owns
more than 10% of the aggregate voting power represented by all the outstanding
shares of capital stock of the Corporation generally entitled to vote in the
election of Directors of the Corporation, at a cash price per share equal to
(i) 125% of the product of the Formula Number times the Market Value (as such
term is hereinafter defined) of the Common Shares, plus (ii) all dividends
which on the redemption date have accrued on the shares to be redeemed and
have not been paid or declared and a sum sufficient for the payment thereof
set apart, without interest. The "Market Value" on any date shall be
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deemed to be the average of the daily closing prices, per share, of the Common
Shares for the 30 consecutive Trading Days immediately prior to the date in
question. The closing price for each Trading Day shall be the last sale price,
regular way, or, in case no such sale take place on such Trading Day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system if the
Common Shares are listed or admitted to trading on a national securities
exchange or, if the Common Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use, or, if on any such Trading
Day the Common Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Shares selected by the Board of Directors of the
Corporation. If on any such Trading Day no market maker is making a market in
the Common Shares, the closing price of such Common Shares on such Trading Day
shall be deemed to be the fair value of the Common Shares as determined in
good faith by the Board of Directors of the Corporation. "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Common Shares are listed or admitted to trading is open for the transaction of
business or, if the Common Shares are not listed or admitted to trading on any
national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday
which is not a day on which banking institutions in the Borough of Manhattan,
The City of New York, are authorized or obligated by law or executive order to
close;
(b) the shares of Series A Preferred Shares shall not be subject to or
entitled to the operation of a retirement or sinking fund.
(viii) Ranking. The Series A Preferred Shares shall rank equally and on
a parity with all other series of Preferred Shares of the Corporation with
respect to the payment of dividends and distribution of assets upon the
liquidation, dissolution or winding up of the Corporation.
(ix) Fractional Shares. The Series A Preferred Shares shall be issuable
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-hundredth (1/100th) of a
share or any integral multiple of such fraction which shall entitle the
holder, in proportion to such holder's fractional shares, to receive
dividends, exercise voting rights, participate in distributions and to have
the benefit of all other rights of holders of Series A Preferred Shares. The
Corporation, prior to the first issuance of a share or a fraction of a share
of Series A Preferred Shares, may elect (1) to issue certificates evidencing
such authorized fraction of a share of Series A Preferred Shares or (2) to
issue depository receipts evidencing such authorized fraction of a share of
Series A Preferred Shares pursuant to an appropriate agreement between the
Corporation and a depository selected by the Corporation, provided that such
agreement shall provide that the holders of such depository receipts shall
have all the rights, privileges and preferences to which they are entitled as
holders of the Series A Preferred Shares.
(x) Reacquired Shares. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
Preferred Shares, without designation as to series until such shares are once
more designated as part of a particular series by resolution of the Board of
Directors.
(xi) Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred
Shares as provided herein shall be amended in any manner which would alter or
change the powers, preferences, rights or privileges of the holders of Series
A Preferred Shares so as to affect them adversely without the affirmative vote
of the holders of at least 66 2/3% of the outstanding Series A Preferred
Shares, voting as a separate class; provided, however, that no such amendment
approved by the holders of at least 66 2/3% of the outstanding Series A
Preferred Shares shall be deemed to apply to the powers, preferences, rights
or privileges of any holder of Series A Preferred Shares originally issued
upon exercise of the Rights after the time of such approval without the
approval of such holder.
FIFTH: No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential, preemptive or other right
to subscribe for, purchase or receive any shares of the Corporation of
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any class, now or hereafter authorized, or any options or warrants for such
shares, or any rights, to subscribe to or purchase such shares, or any
securities convertible into or exchangeable for such shares, which may at any
time be issued, sold or offered for sale by the Corporation other than as the
Board of Directors in its discretion may from time to time determine on such
terms and conditions as the Board of Directors may from time to time fix.
SIXTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The mail post office address to
which the Secretary of State shall mail a copy of any process against the
Corporation served upon him or her is 114 West 47th Street, New York, New York
10036.
SEVENTH: The accounting period which the Corporation intends to establish
as its first calendar or fiscal year for reporting the franchise tax imposed
by Article Nine-A of the Tax Law of the State of New York is the period ending
December 31, 1995.
EIGHTH: (A) Except as provided in paragraph (B), the affirmative vote, at
a meeting of the shareholders of the Corporation, of (i) the holders of at
least 80% of the combined voting power of the then outstanding Voting Shares
(as hereinafter defined) of the Corporation and (ii) the holders of at least a
majority of the combined voting power of the then outstanding Voting Shares of
the Corporation held by Disinterested Shareholders (as hereinafter defined),
in each case voting together as a single class, shall be required prior to and
as a condition to the consummation of any Business Combination (as hereinafter
defined). Such vote shall be in addition to any shareholder vote required
without reference to this Article EIGHTH, and shall be required
notwithstanding that no vote may otherwise be required, or that some lesser
percentage may be specified, by law, by this certificate of incorporation, by
the Corporation's bylaws or otherwise.
(B) The provisions of paragraph (A) shall not apply to a particular
Business Combination, and such Business Combination shall require only such
shareholder vote or approval (if any) as would be required without reference
to this Article EIGHTH, if either (I) the Business Combination shall have been
approved by a majority of the Continuing Directors (as hereinafter defined),
whether such approval is given before or after the transaction in which the
Interested Shareholder (as hereinafter defined) became an Interested
Shareholder, or (II) all the conditions set forth in subparagraphs (1) through
(5) below are satisfied.
(1) The transaction constituting the Business Combination shall provide
that the holders of Common Shares shall receive a consideration in exchange
for their Common Shares, and the aggregate amount of cash and the Fair Market
Value (as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received per share
by holders of Common Shares in such Business Combination shall be at least
equal to the highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the
Beneficial Owner (as hereinafter defined) which were acquired (i) within the
two-year period immediately prior to the date of the first public announcement
of the proposed Business Combination (the "Announcement Date") or (ii) in the
transaction in which the Interested Shareholder became an Interested
Shareholder, whichever is higher;
(b) the Fair Market Value per Common Share on the Announcement Date or on
the date on which the Interested Shareholder became an Interested Shareholder,
whichever is higher; and
(c) (if applicable) the price per share equal to the Fair Market Value
per Common Share determined pursuant to clause (b) immediately preceding
multiplied by the ratio of (i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any Common Shares of which the Interested Shareholder is the
Beneficial Owner which were acquired within the two-year period immediately
prior to the Announcement Date to (ii) the Fair Market Value per Common Share
on the first day in such two-year period on which the Interested Shareholder
was the Beneficial Owner of any Common Shares.
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(2) If the transaction constituting the Business Combination shall
provide that the holders of any class of outstanding Voting Shares other than
Common Shares shall receive a consideration in exchange for their shares, the
aggregate amount of cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other than cash to
be received per share by holders of such Voting Shares shall be at least equal
to the highest of the following (it being intended that the requirements of
this subparagraph (B)(2) shall be met with respect to every class of
outstanding Voting Shares other than Common Shares, whether or not the
Interested Shareholder is the Beneficial Owner of any shares of a particular
class of such Voting Shares):
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner which were acquired (i) within the
two-year period immediately prior to the Announcement Date or (ii) in the
transaction in which the Interested Shareholder became an Interested
Shareholder, whichever is higher;
(b) (if applicable) the highest preferential amount per share to which
the holders of shares of such class of Voting Shares are entitled in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(c) the Fair Market Value per share of such class of Voting Shares on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder, whichever is higher; and
(d) (if applicable) the price per share equal to the Fair Market Value
per share of such class of Voting Shares determined pursuant to clause (c)
immediately preceding multiplied by the ratio of (i) the highest per share
price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid in order to acquire any shares of such class of Voting
Shares of which the Interested Shareholder is the Beneficial Owner which were
acquired within the two-year period immediately prior to the Announcement Date
to (ii) the Fair Market Value per share of such class of Voting Shares on the
first day in such two-year period on which the Interested Shareholder was the
Beneficial Owner of any shares of such class of Voting Shares.
(3) The consideration to be received in such Business Combination by
holders of a particular class of outstanding Voting Shares (including Common
Shares) shall be in cash or in the same form as was previously paid in order
to acquire shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner and, if the Interested Shareholder is the
Beneficial Owner of shares of any class of Voting Shares which were acquired
with varying forms of consideration, the form of consideration to be received
by holders of such class of Voting Shares shall be either cash or the form
used to acquire the largest number of shares of such class of Voting Shares of
which the Interested Shareholder is the Beneficial Owner.
(4) After such Interested Shareholder became an Interested Shareholder
and prior to the consummation of such Business Combination, (a) such
Interested Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax credits provided by
the Corporation or any Subsidiary (as hereinafter defined), or made any major
change in the Corporation's business or equity capital structure or entered
into any contract, arrangement or understanding with the Corporation, except
any such change, contract, arrangement or understanding as may have been
approved by a majority of the Continuing Directors, (b) except as approved by
a majority of the Continuing Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly dividend
(whether or not cumulative) on any outstanding Preferred Shares or other
shares of the Corporation entitled to a preference over Common Shares as to
dividends or upon liquidation; (c) there shall have been (i) no reduction in
the annual rate of dividends paid on the Common Shares (except as necessary to
reflect any subdivision of the Common Shares), unless approved by a majority
of the Continuing Directors, and (ii) an increase in such annual rate of
dividends (as necessary to prevent any such reduction) in the event of any
reclassification (including any reverse stock split), recapitalization,
reorganization or similar transaction which has the effect of reducing the
number of outstanding Common Shares, unless the failure so to increase such
annual rate is approved by a majority of the Continuing Directors; (d) such
Interested Shareholder shall not have become the Beneficial Owner of any
additional
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Voting Shares subsequent to the transaction in which it became an Interested
Shareholder; and (e) there shall have always been at least three Continuing
Directors on the Board of Directors of the Corporation.
(5) Whether or not required by law, a proxy or information statement
complying with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") shall have been mailed to all holders of Voting
Shares for the purpose of soliciting shareholder approval of such Business
Combination at least 30 days prior to the consummation thereof. Such proxy or
information statement shall contain at the front thereof, in a prominent
place, any recommendations as to the advisability (or inadvisability) of the
Business Combination which the Continuing Directors, or any of them, may have
furnished to the Corporation in writing and, if deemed advisable by a majority
of the Continuing Directors, an opinion of a reputable investment banking firm
as to the fairness (or lack of fairness) of the terms of such Business
Combination from the point of view of the Disinterested Shareholders (such
investment banking firm to be selected by a majority of the Continuing
Directors, to be furnished with all information it reasonably requests and to
be paid a reasonable fee by the Corporation for its services following the
receipt by the Corporation of such opinion).
(C) For the purposes of this Article EIGHTH:
(1) The term "Business Combination" means (i) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with an Interested
Shareholder (in a single transaction or a series of related transactions) of
all or a Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any securities of a Subsidiary) or
all or a Substantial Part of the assets of a Subsidiary; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with the
Corporation or to or with a Subsidiary (in a single transaction or a series of
related transactions) of all or a Substantial Part of the assets of an
Interested Shareholder; (iii) any merger or consolidation of the Corporation
or any Subsidiary into or with an Interested Shareholder or into or with
another Corporation or company which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an Interested Shareholder,
in each case irrespective of which Corporation or company is the surviving
entity in such merger or consolidation; (iv) the issuance or transfer of any
securities of the Corporation or a Subsidiary by the Corporation or a
Subsidiary to an Interested Shareholder, with the exception of securities
which, when aggregated with all such securities so issued or transferred
within the preceding five years to such Interested Shareholder and the
Affiliates and Associates (as hereinafter defined) of such Interested
Shareholder, or any of them, have a Fair Market Value of less than $13
million, determined in each case as of the time of each issuance or transfer
in question and with the exception of an issuance of securities upon
conversion of convertible securities of the Corporation or of a Subsidiary
which were not acquired by the Interested Shareholder (or any such Affiliate
or Associate) from the Corporation or any Subsidiary; (v) any reclassification
of securities (including any reverse stock split or consolidation of shares),
recapitalization, reorganization, merger or consolidation of the Corporation
with any of its Subsidiaries, or any similar transaction (whether or not with
or into or otherwise involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the proportionate amount of the
outstanding shares or amount of any class of equity security of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Interested Shareholder; (vi) any merger of the Corporation into a Subsidiary,
or any consolidation between the Corporation and a Subsidiary, unless the
surviving or consolidated corporation or company, as the case may be, has a
provision in its certificate of incorporation identical or substantially
similar to this Article EIGHTH; (vii) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed by or on behalf of
any Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or (viii) any agreement, contract or other arrangement providing
for any of the transactions hereinabove described in this definition of
Business Combination.
(2) "Interested Shareholder" at any particular time means, with respect
to any Business Combination, any Person (as hereinafter defined) (other than
the Corporation or any Subsidiary) who or which (i) is the Beneficial Owner of
10% or more of the outstanding Voting Shares, (ii) is an Affiliate of the
Corporation and at any time within the preceding five years was the Beneficial
Owner of 10% or more of the then outstanding Voting Shares or (iii) is at such
time an assignee of or has otherwise succeeded to the beneficial ownership of
any Voting Shares of which any Interested Shareholder was the Beneficial Owner
at any time within the two-year period immediately prior to the date in
question, if such assignment or succession shall have occurred in
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the course of a transaction or series of related transactions not involving
any public offering within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). "Person" means any individual, firm,
corporation, company or other entity.
(3) A Person shall be considered the "Beneficial Owner" of any Voting
Shares (i) which are owned beneficially (whether or not owned of record) by
such Person or by any Affiliate or Associate of such Person, (ii) which such
Person or any Affiliate or Associate of such Person has (a) the right to
acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (b) the right to vote pursuant to any agreement, arrangement
or understanding, or (iii) which are owned beneficially (whether or not owned
of record) by any other Person with which such first-mentioned Person or any
of its Affiliates or Associates has any agreement, arrangement or
understanding with respect to acquiring, holding, voting or disposing of any
Voting Shares or acquiring, holding or disposing of all or a Substantial Part
of the assets of the Corporation or a Subsidiary. For the purpose only of
determining whether a Person is the Beneficial Owner of 10% or more of the
outstanding Voting Shares, such outstanding shares shall be deemed to include
any Voting Shares which may be issuable pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange rights,
warrants, options or otherwise and of which such Person is deemed to be the
Beneficial Owner pursuant to the foregoing provisions of this subparagraph
(3). In addition to such provisions, for all purposes of this Article EIGHTH,
a Person shall be deemed to be the Beneficial Owner of Voting Shares if such
Person is deemed the beneficial owner thereof pursuant to Rule 13d-3 under the
Exchange Act.
(4) For the purpose of determining whether a Person is an Interested
Shareholder pursuant to subparagraph (2) of this paragraph (C), the number of
Voting Shares deemed to be outstanding shall include shares of which the
Interested Shareholder is deemed the Beneficial Owner through application of
subparagraph (3) of this paragraph (C) but shall not include any other Voting
Shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise.
(5) "Disinterested Shareholder" means a shareholder of the Corporation
who is not an Interested Shareholder or an Affiliate or an Associate of an
Interested Shareholder.
(6) The term "Voting Shares" means shares of the Corporation entitled to
vote generally in the election of directors, considered for the purposes of
this Article EIGHTH as one class.
(7) The term "Substantial Part" as used with reference to the assets of
the Corporation, of any Subsidiary or of any Interested Shareholder means
assets having a value of more than 5% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most
recent fiscal year ended prior to the time the determination is being made.
(8) For purposes of paragraph (B) of this Article EIGHTH, in the event of
a Business Combination upon consummation of which the Corporation would be the
surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination
or within one year after consummation thereof a plan of liquidation or
dissolution of the Corporation will be adopted or effected), the term
"consideration other than cash to be received" shall include (without
limitation) Common Shares of the Corporation retained by shareholders of the
Corporation other than Interested Shareholders who are parties to such
Business Combination.
(9) "Continuing Director" means a member of the Board of Directors of the
Corporation who is not an Affiliate or an Associate of an Interested
Shareholder and not a representative or nominee of an Interested Shareholder
and who either (i) was first elected as a director prior to the date as of
which an Interested Shareholder who or which proposes to enter into or be a
party to or involved in a Business Combination became an Interested
Shareholder or (ii) was designated (before his initial election as a director)
as a continuing Director by a majority of the then Continuing Directors.
(10) "Affiliate" means a Person who directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, another Person and in addition means any "affiliate" as
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that term is defined in Rule 12b-2 under the Exchange Act (the term
"registrant" in such Rule 12b-2 meaning in this case the Corporation).
(11) "Associate" means (i) any corporation, company or organization of
which a Person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of 5% or more of any class (or series thereof) of equity
securities, (ii) any trust or other estate in which a Person has a 5% or
larger beneficial interest of any nature or as to which a Person serves as
trustee or in a similar fiduciary capacity, (iii) any spouse of a Person, (iv)
any relative of a Person, or any relative of a spouse of a Person, who has the
same residence as such Person or spouse, and (v) any "associate" as that term
is defined in such Rule 12b-2 (the term "registrant" in such Rule 12b-2
meaning in this case the Corporation).
(12) "Subsidiary" means any corporation or company of which a majority of
any class (or series thereof) of equity security (as defined in Rule 3a11-1
under the Exchange Act) is owned, directly, or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Shareholder set forth in subparagraph (2) of this paragraph (C), the term
"Subsidiary" shall mean only a corporation or company of which a majority of
each class (or series thereof) of equity security is owned, directly or
indirectly, by the Corporation.
(13) "Fair Market Value" means: (1) in the case of shares, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such class of shares is not quoted on the Composite Tape, on
the New York Stock Exchange, or if such class is not listed on such Exchange,
on the principal United States securities exchange registered under the
Exchange Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing sale price (or highest closing bid
quotation if such closing sale price is not reported) with respect to such
shares during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotation System or any
system then in use, or if no such quotations are available, the fair market
value on the date in question of a share as determined by a majority of the
Continuing Directors in good faith; and (2) in the case of property other than
cash or shares, the fair market value of such property on the date in question
as determined by a majority of the Continuing Directors in good faith.
(14) As used in the definition of Business Combination, a "series of
related transactions" shall be deemed to include not only a series of
transactions with the same Interested Shareholder but also a series of
separate transactions with an Interested Shareholder and any Affiliate or
Associate of such Interested Shareholder.
(15) An Interested Shareholder shall be deemed to have acquired a share
of the Corporation at the time when such Interested Shareholder became the
Beneficial Owner thereof. With respect to shares owned by Affiliates,
Associates or other Persons whose ownership is attributed to an Interested
Shareholder under the foregoing definition of Beneficial Owner, if the price
paid by such Interested Shareholder for such shares is not determinable, the
price so paid shall be deemed to be the higher of (a) the price paid upon
acquisition thereof by the Affiliate, Associate or other Person or (b) the
market price of the shares in question at the time when the Interested
Shareholder became the Beneficial Owner thereof.
(D) A majority of the Continuing Directors shall have the power to
determine for the purposes of this Article EIGHTH, on the basis of information
known to them, (i) whether a Person is an Interested Shareholder, (ii) the
number of Voting Shares of which any Person is the Beneficial Owner, (iii)
whether a Person is an Affiliate or Associate of another, (iv) whether a
Person has an agreement, arrangement or understanding with another as to the
matters referred to in subparagraph (3) of paragraph (C), (v) whether the
assets subject to any Business Combination constitute a "Substantial Part" as
hereinabove defined, (vi) whether two or more transactions constitute a
"series of related transactions" as hereinabove defined and (vii) any matters
referred to in subparagraph (15) of paragraph (C). Any such determination made
in good faith shall be binding and conclusive on all parties.
(E) Any amendment, change or repeal of this Article EIGHTH, or any other
amendment of this certificate of incorporation which would have the effect of
modifying or permitting circumvention of this
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Article EIGHTH, shall require the affirmative vote, at a meeting of
shareholders of the Corporation, of (i) the holders of at least 80% of the
combined voting power of the then outstanding Voting Shares and (ii) the
holders of at least a majority of the combined voting power of the then
outstanding Voting Shares held by Disinterested Shareholders, in each case
voting together as a single class; provided, however, that this paragraph (E)
shall not apply to, and such 80% vote and such majority vote shall not be
required for, any such amendment, change or repeal recommended to shareholders
by a majority of the Continuing Directors and any such amendment, change or
repeal so recommended shall require only the vote, if any, required under the
applicable provisions of the New York Business Corporation Law. For purposes
of this paragraph (E) only, if at the time when any such amendment, change or
repeal is under consideration there is no proposed Business Combination (in
which event clause (i) of the definition of Continuing Director in
subparagraph (C)(9) above would be inapplicable), the "Continuing Directors"
shall be deemed to be those persons who were members of the Board of Directors
of the Corporation at the time when the amendment of this certificate of
incorporation to add this Article EIGHTH was approved by shareholders plus
those persons who are Continuing Directors pursuant to clause (ii) of
subparagraph (C)(9).
(F) Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed by
law.
(G) The fact that any Business Combination complies with the provisions
of this Article EIGHTH shall not be construed to impose any fiduciary
obligation on the Board of Directors, or any member thereof, to approve such
Business Combination or to recommend its adoption or approval by the
shareholders of the Corporation.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders or any of them for damages for any breach of
duty in such capacity, except as may otherwise be required by applicable law.
Any repeal or modification of this Article NINTH shall not adversely affect
any right or protection of a director of the Corporation with respect to any
act or omission occurring prior to, or at the time of, such repeal or
modification.
5. This Restated Certificate of Incorporation and the amendments set
forth herein have been duly authorized by the Board of Directors by unanimous
written consent, followed by the unanimous written consent of the shareholders
of the Corporation pursuant to Sections 708(b) and 615(a), respectively, of
the Business Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Restated
Certificate of Incorporation on this th day of , 1995 and
affirmed that the statements made herein are true under penalties of perjury.
------------------------------------
H. Marshall Schwarz
Chairman of the Board
------------------------------------
Carol A. Strickland
Secretary
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APPENDIX II
<PAGE>
APPENDIX II
RESTATED
BY-LAWS
OF
NEW USTC HOLDINGS CORPORATION
ARTICLE I
SHAREHOLDERS
SECTION 1.01. Annual Meeting. The annual meeting of the shareholders of
New USTC Holdings Corporation (the "Corporation") for the election of
directors and the transaction of such other business as may properly come
before the meeting shall be held on a date which is no later than six months
after the close of the Corporation's preceding fiscal year (but in no event
later than 13 months after the last annual meeting) and at such place within
or without the State of New York as shall be fixed by the Board of Directors.
SECTION 1.02. Special Meetings. Except as otherwise provided by law, a
special meeting of the shareholders may be called by the Board of Directors,
by the Chairman of the Board, by the President or by a Vice Chairman of the
Board. Any such call or request shall state the purpose or purposes of the
proposed meeting, and the business transacted at such meeting shall be
confined to the purpose or purposes stated in the call. Special meetings shall
be held at such place within or without the State of New York and on such date
as may be specified in the call thereof, but any special meeting may be called
and held in conjunction with an annual meeting of the shareholders.
SECTION 1.03. Record Date for Meetings and Other Purposes. For the
purpose of determining the shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such date shall not be more than 50 nor less
than 10 days before the date of such meeting, nor more than 50 days prior to
any other action.
If no record date is so fixed by the Board of Directors, (a) the record
date for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given or, if no notice is given, the day
on which the meeting is held, and (b) the record date for determining
shareholders for any other purpose shall be at the close of business on the
day on which the resolution of the Board of Directors relating thereto is
adopted.
A determination of shareholders of record entitled to notice of or to
vote at any meeting of shareholders made in accordance with this Section shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date under this Section for the adjourned meeting.
SECTION 1.04. Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, written notice shall be given
stating the place, date and hour of the meeting and, unless it is the annual
meeting, indicating that it is being issued by or at the direction of the
person or persons calling the meeting. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called. If at any
meeting action is proposed which would if taken entitle shareholders
fulfilling the requirements of Section 623 of the New York Business
Corporation Law to receive payment for their shares, the notice of such
meeting shall include a statement of that purpose and to that effect. A copy
of the notice of any meeting shall be given personally or by mail not less
than 10 nor more than 50 days before the date of the meeting to each
shareholder entitled to vote at such meeting. If mailed, such notice is given
when deposited in the United States mail with postage thereon prepaid directed
to the shareholder at his address as it appears on
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the record of shareholders, or, if he shall have filed with the Secretary of
the Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the
meeting. However, if after the adjournment the Board of Directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record on the new record date entitled to
notice under this Section.
SECTION 1.05. Waivers of Notice. Notice of any meeting of shareholders
need not be given to any shareholder who submits a signed waiver of notice, in
person or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to
the conclusion of the meeting the lack of notice of such meeting shall
constitute a waiver of notice by him.
SECTION 1.06. List of Shareholders at Meetings. A list of shareholders
as of the record date, certified by the Secretary or transfer agent of the
Corporation, shall be produced at any meeting of shareholders upon the request
thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors of election, or person presiding
thereat, shall require such list of shareholders to be produced as evidence of
the right of the persons challenged to vote at such meeting, and all persons
who appear from such list to be shareholders entitled to vote thereat may vote
at such meeting.
SECTION 1.07. Quorum at Meetings. Except as otherwise provided by law,
the holders of a majority of the shares entitled to vote thereat shall
constitute a quorum at any meeting of shareholders for the transaction of any
business, but the shareholder present may adjourn the meeting despite the
absence of a quorum. When a quorum is once present to organize a meeting it
shall not be broken by the subsequent withdrawal of any shareholders.
SECTION 1.08. Presiding Officer and Secretary. At any meeting of the
shareholders, if neither the Chairman of the Board, the President, a Vice
Chairman of the Board nor a person designated by the Board of Directors to
preside at the meeting shall be present, the shareholders shall appoint a
presiding officer for the meeting. If neither the Secretary nor an Assistant
Secretary be present, the appointee of the person presiding at the meeting
shall act as secretary of the meeting.
SECTION 1.09. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in this Section 1.09 shall be
eligible for election as directors at any meeting of shareholders held for the
election of directors (an "Election Meeting"). Nominations of persons for
election to the Board of Directors of the Corporation may be made at an
Election Meeting by or at the direction of the Board of Directors or by a
shareholder of the Corporation who was a shareholder of record at the time of
giving of notice provided for in this Section 1.09, who is entitled to vote
for the election of directors at such Election Meeting and who complies with
the notice procedures set forth in this Section 1.09. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a shareholder's notice must be delivered to or mailed and
received at the principal office of the Corporation not less than 60 days nor
more than 90 days prior to such Election Meeting; provided, however, that in
the event the election Meeting is not held within 10 business days of the date
set in these By-laws for the election of directors and less than 70 days'
notice or prior public announcement of the date of such Election Meeting is
given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of such Election Meeting was mailed or
such public announcement was made. Notwithstanding anything in the foregoing
sentence to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation at such Election Meeting
is increased or there is a vacancy to be filled at such Election Meeting in a
class of directors whose terms do not expire at such Election Meeting and
there is no public announcement at least 70 days prior to such Election
Meeting naming all of the nominees for director or specifying the size of the
enlarged Board of Directors or the number of directors to be elected, a
shareholder's notice required by this Section 1.09 shall also be considered
timely, but only with respect to nominees for any positions created by such
increase or
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vacancy, if it shall be delivered to or mailed and received at the principal
office of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
Such shareholder's notice to the Secretary of the Corporation shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of the Corporation which
are owned beneficially by such person and (iv) any other information
concerning such person that is required to be disclosed in connection with the
solicitation of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including without limitation such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (b) as to the shareholder giving
the notice and the beneficial owner, if any, on whose behalf the nomination is
made, (i) the name and address of such shareholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and by such beneficial owner. At the request of the Board
of Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which
pertains to such nominee.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
1.09. In the event that a person is validly designated as a nominee in
accordance with the foregoing and shall thereafter become unable or unwilling
to stand for election to the Board of Directors, the Board of Directors or the
shareholder who proposed such nominee, as the case may be, may designate a
substitute nominee. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made
in accordance with the provisions of this Section 1.09 and if the presiding
officer should so determine, he or she shall declare to the meeting that the
defective nomination shall be disregarded. In addition to the provisions of
this Section 1.09, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein.
SECTION 1.10. Public Announcement. For purposes of this Article I,
"public announcement" shall mean disclosure in a communication sent by first
class mail to shareholders, in a press releases reported by the Dow Jones News
Service, Reuters Information Services, Inc., Associated Press or a comparable
national news service or in a document filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
SECTION 1.11. Proxies. Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him by proxy. Every proxy shall
be signed by the shareholder or his attorney-in-fact. No proxy shall be valid
after the expiration of 11 months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
shareholder executing it, except as otherwise provided by law. Proxies shall
be delivered to the Secretary of the Corporation or, if inspectors are
appointed to act at a meeting, to the inspectors.
SECTION 1.12. Inspectors. The Board of Directors in advance of any
meeting of shareholders may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at the meeting may, and on the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of
a quorum and the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising
in connection with the right
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to vote, count and tabulate all votes, ballots or consents, determine the
result and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the
meeting or any shareholder entitled to vote thereat, the inspectors shall make
a report in writing of any challenge, question or matter determined by them
and execute a certificate of any fact found by them.
SECTION 1.13. Voting. Whenever directors are to be elected by the
shareholders, they shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election. Whenever any corporate action other than the election of directors
is to be taken by vote of the shareholders, it shall, except as otherwise
required by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holder of shares entitled to vote thereon.
Except as otherwise may be provided in the certificate of incorporation
of the Corporation, every shareholder of record shall be entitled at every
meeting of shareholders to one vote for every share standing in his name on
the record of shareholders. Upon the demand of any shareholder, the vote at
any election of directors or upon any other question shall be by ballot, but
otherwise the method of voting shall be discretionary with the person
presiding at the meeting.
SECTION 1.14. Written Consent of Shareholders Without a
Meeting. Whenever shareholders are required or permitted to take any action
by vote, such action may be taken without a meeting on written consent setting
forth the action so taken and signed by the holders of all outstanding shares
entitled to vote thereon. The provisions of this Section shall not be
construed to alter or modify any provision of law or of the certificate of
incorporation of the Corporation under which the written consent of the
holders of less than all outstanding shares is sufficient for corporate
action.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Number and Qualification of Directors. The business of the
Corporation shall be managed under the direction of a Board of Directors,
consisting of such number of directors, not less than nine, as shall be fixed
from time to time by resolution adopted by a majority of the entire Board or
at any annual or special meeting of the shareholders entitled to vote for the
election of directors; provided that no decrease in the number of directors
shall shorten the term of any incumbent director. Each director shall be at
least 18 years of age. No person shall be eligible for election or qualified
to remain in office as a director who shall have attained the age of 72 years,
and any director in office shall retire as such upon attaining the age of 72
years.
SECTION 2.02. Classification and Term of Directors. The directors shall
be elected for terms of three years and shall be divided into three classes,
as nearly equal in number as possible, with the terms of office of one class
expiring each year on the date of the annual meeting of shareholders. At each
annual meeting of shareholders, directors to replace those whose terms expire
at such annual meeting shall be elected to hold office until the third
succeeding annual meeting thereafter, but each director, of whatever class,
shall hold office until a successor shall have been elected and qualify. Any
increase or decrease in the number of directors shall be so apportioned among
the classes as to make all classes as nearly equal in number as possible. When
the number of directors is increased by the Board and any newly created
directorships are filled by the Board, there shall be no classification of the
additional directors until the next annual meeting of shareholders.
SECTION 2.03. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason may be filled either by vote
of the shareholders or by vote of a majority of the directors then in office,
although less than a quorum exists. A director elected to fill a vacancy, or
to fill a newly created directorship, shall be elected to hold office until
the next meeting of shareholders at which the election of directors is in the
regular order of business, and until a successor has been elected and
qualified.
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SECTION 2.04. Resignations. Any director may resign from office at any
time by delivering a resignation in writing to the Chairman of the Board, the
President, a Vice Chairman of the Board or the Secretary of the Corporation,
and the acceptance of such resignation, unless required by the terms thereof,
shall not be necessary to make such resignation effective.
SECTION 2.05. Removal of Directors. Any director may be removed for
cause either by vote of the shareholders or by a majority of the entire Board.
SECTION 2.06. Meetings. Meetings of the Board, regular or special, may
be held at any place within or without the State of New York as the Board from
time to time may fix or as shall be specified in the respective notice or
waivers of notice thereof. Within 15 days following each annual meeting of
shareholders for the election of directors, and annual meeting of the Board
for the appointment of officers and the transaction of such other business as
may properly come before the meeting shall be held. Such annual meeting of the
Board shall be the regular meeting of the Board next following the annual
meeting of shareholders, unless a special meeting of the Board shall in the
meantime have been duly called and held for such purposes. The Board may fix
times and places for regular meetings of the Board, and no notice of such
meetings need be given. Special meetings of the Board shall be held whenever
called by the Chairman of the Board, the President, a Vice Chairman of the
Board or by at least one-third of the directors at the time in office. Notice
of the time and place of each such meeting shall be given by the Secretary or
by a person calling the meeting to each director by mailing the same not later
than the second day before the meeting or personally or by telegraphing,
cabling or telephoning the same not later than the day before the meeting. A
notice or waiver of notice need not specify the purpose or purposes of any
regular or special meeting of the Board. Notice of a meeting need not be given
to any director who submits a signed waiver of notice whether before or after
the meeting, or who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him. A majority of the directors
present, whether or not a quorum is present, may adjourn any meeting to
another time and place. Notice of any adjournment of a meeting of the Board
shall be given to the directors who were not present at the time of the
adjournment and, unless such time and place are announced at the meeting, to
the other directors.
SECTION 2.07. Quorum and Voting. One-third of the entire Board shall
constitute a quorum for the transaction of any business. Except as otherwise
provided by law or by these By-laws, the vote of a majority of the directors
present at a meeting at the time of the vote, if a quorum is present at such
time, shall be the act of the Board.
SECTION 2.08. Written Consents and Meetings by Telephone. Any action
required or permitted to be taken by the Board or any committee thereof may be
taken without a meeting if all members of the Board or the committee consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the Board or
committee shall be filed with the minutes of the proceedings of the Board or
committee. Any one or more members of the Board or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 2.09. Compensation of Directors. Directors who are not officers
of the Corporation shall be entitled to receive such compensation for services
to the Corporation in their capacities as such or otherwise in such amounts as
may be fixed from time to time by the Board. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 2.10. Entire Board. As used in these By-laws, the term "entire
Board" means the total number of directors which the Corporation would have if
there were no vacancies.
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ARTICLE III
COMMITTEES
SECTION 3.01. Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may appoint an Executive Committee, consisting
of three or more directors including the Chairman of the Board and President,
which shall have all the authority of the Board when the Board is not in
session, except as may be otherwise provided by law or limited by resolution
of the Board. Minutes of each meeting of the Executive Committee shall be kept
and shall be submitted to the first regular meeting of the Board following the
meeting of the Executive Committee. The Executive Committee may adopt its own
rules of procedure and shall fix the time and place, within or without the
State of New York, of its meetings. No notice of any regular meetings of the
Executive Committee shall be required. The Executive Committee shall serve at
the pleasure of the Board.
SECTION 3.02. Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may designate from among its members one or more
other committees, each consisting of three or more directors, and each of
which, to the extent provided in the resolution, shall have all the authority
of the Board except as otherwise limited by law. The Board may authorize the
Chief Executive Officer to appoint, from time to time, such other committees
consisting of directors, officers, or other persons and having such powers,
duties and functions as the Board may determine. Each such committee and each
member thereof shall serve at the pleasure of the Board, or in the case of any
committee appointed by the Chief Executive Officer, at the pleasure of the
Chief Executive Officer. A majority of the members of any such committee shall
determine its rules of procedure and the time and place of its meetings,
unless the Board, or in the case of any committee appointed by the Chief
Executive Officer, the Chief Executive Officer, shall otherwise provide.
SECTION 3.03. Quorum and Voting. A majority of the members of a
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members present at the time of the vote, if a quorum
is present at such time, shall be the act of the committee.
SECTION 3.04. Committee Membership. The Board, or in the case of any
committee appointed by the Chief Executive Officer, the Chief Executive
Officer, may fill any vacancy in a committee and may designate one or more
persons as alternate members of a committee who may replace any absent member
or members at any meeting of such committee.
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
SECTION 4.01. General Provisions. The officers of the Corporation shall
include a Chairman of the Board, a President, one or more Vice Chairmen of the
Board, a Secretary, a Treasurer, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President, Senior Vice President or
by some other special designation), a Comptroller, and an Auditor, and such
other officers, including but not by way of limitation one or more Assistant
Secretaries, Assistant Treasurers and Assistant Comptrollers, as may be
elected or appointed in accordance with the provisions of these By-laws.
The Chairman of the Board, the President, the Vice Chairmen of the Board,
Executive Vice Presidents (each of the foregoing officers being referred to
hereinafter as an "Executive Officer"), one or more other Vice Presidents, the
Secretary, the Treasurer and such other officers, if any, as the Board may
determine, shall be elected by the Board at the annual meeting of the Board
following each annual meeting of shareholders. Each such officer shall hold
office until the next annual election of officers and until a successor is
elected and shall have qualified. Any two or more offices other than the
office of President and Secretary may be held by the same person.
The Board from time to time may appoint the other officers provided for
in these By-laws and such other officers as it shall deem fit. The Chairman of
the Board, or in his absence the President, may appoint such further officers
below the rank of Vice President with such titles and duties as may be
specified upon appointment.
II-6
<PAGE>
All officers of the Corporation may be removed or their authority
suspended by the Board, and officers appointed by the Chairman of the Board or
the President may also be removed or their authority suspended by the Chairman
of the Board, or in his absence the President, in any such case, at any time,
with or without cause. Such removal without cause shall be without prejudice
to such person's contract rights, if any, but the appointment of any person as
an officer of the Corporation shall not of itself create contract rights. A
vacancy in any office may be filled in the manner prescribed in these By-laws
for election or appointment to such office.
The compensation of officers shall be fixed by the Board; provided that
this power may be delegated to any officer as to persons under his direction
or control.
All other agents and employees of the Corporation shall be appointed,
their duties prescribed and their compensation fixed, by the Chairman of the
Board or the President, or any officer authorized to do so by either of them.
The Board may require any officer, agent or employee to give security for
the faithful performance of his duties.
SECTION 4.02. Powers and Duties of the Chairman of the Board and the
President. The Chairman of the Board and the President shall be elected from
among the members of the Board, and one of them shall be designated by the
Board as Chief Executive Officer. The Chief Executive Officer shall have
general supervision of the business and affairs of the Corporation which shall
in every case be subject to the direction and control of the Board. The
Chairman of the Board, or in his absence the President, shall preside at all
meetings of the shareholders and of the Board.
SECTION 4.03. Duties of Other Officers. The officers of the Corporation
other than the Chief Executive Officer shall participate in the management of
the business and affairs of the Corporation as directed, and in the order of
seniority as determined, by the Board. They shall perform such duties as may
be assigned to them by the Board, the Chief Executive Officer or any officer
authorized by the Board or the Chief Executive Officer to do so, or as may be
prescribed by law or by these By-laws.
SECTION 4.04. Secretary. The Secretary shall keep the minutes of all
meetings of the Board and of the Executive Committee, shall have custody of
the corporate seal, shall give notices of meetings required by these By-laws,
shall perform such other duties as may be assigned to him from time to time by
the Board or the Chief Executive Officer and, in general, shall perform those
duties incident to the office of Secretary. In the absence of the Secretary,
an Assistant Secretary shall have the authority to perform the duties of the
Secretary.
SECTION 4.05. Treasurer. The Treasurer shall have responsibility for the
care and custody of all moneys, funds and other property of the Corporation
which may come into his hands, shall perform such other duties as may be
assigned to him from time to time by the Board or the Chief Executive Officer
and, in general, shall perform those duties incident to the office of
Treasurer. In the absence of the Treasurer, an Assistant Treasurer shall have
the authority to perform the duties of the Treasurer.
SECTION 4.06. Comptroller. The Comptroller shall exercise general
supervision over all accounting functions of the Corporation, including
preparation of its required tax returns and reports to supervisory
authorities. He shall be responsible to the Chief Executive Officer and may
report directly to the Board or to the Executive Committee on such matters as
in his judgment should be brought to their attention. In the absence of the
Comptroller, an Assistant Comptroller shall have the authority to perform the
duties of the Comptroller.
SECTION 4.07. Auditor. The Auditor shall exercise supervision over the
Auditing Department, and he shall review and evaluate all existing controls
and procedures and be responsible for reporting on the adequacy of controls,
systems and protective procedures and devices to insure the accuracy of
records and the safety of assets owned or managed by the Corporation. He shall
be responsible to the Chief Executive Officer and to the Board and shall
report directly to the Board, the Executive Committee or an Audit Committee of
the Board on such matters as in his judgment should be brought to their
attention.
II-7
<PAGE>
SECTION 4.08. Delegation of Duties. In case of the absence of any
officer of the Corporation or for any other reason that the Board of Directors
may deem sufficient, the Board may confer for the time being any of the
authority and duties of such officer upon any other officer or upon any
director.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify any person made or threatened to be made
a party to any action or proceeding, whether civil or criminal, and whether or
not by or in the right of the Corporation or of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, by reason of the fact that such
person, his testator or intestate, is or was a director or officer of the
Corporation or served any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity at the request of the Corporation, against
judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred as a result of
such action or proceeding, or any appeal therein; provided that (a) no
indemnification may be made to or on behalf of any person if a judgment or
other final adjudication adverse to such person establishes that his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he personally
gained in fact a financial profit or other advantage to which he was not
legally entitled, (b) no indemnification shall be required in connection with
the settlement of any pending or threatened action or proceeding, or any other
disposition thereof except a final adjudication, unless the Corporation has
consented to such settlement or other disposition and (c) the Corporation
shall not be obligated to indemnify any person by reason of the adoption of
this Article V if and to the extent such person is entitled to be indemnified
under a policy of insurance as such policy would apply in the absence of the
adoption of this Article V.
Reasonable expenses, including attorneys' fees, incurred in defending any
action or proceeding, whether threatened or pending, shall be paid or
reimbursed by the Corporation in advance of the final disposition thereof upon
receipt of an undertaking by or on behalf of the person seeking
indemnification to repay such amount to the Corporation to the extent, if any,
such person is ultimately found not to be entitled to indemnification.
Notwithstanding any other provision hereof, no repeal of this Article V,
or amendment hereof or any other corporate action or agreement which prohibits
or otherwise limits the right of any person to indemnification or advancement
or reimbursement of expenses hereunder, shall be effective as to any person
until the 60th day following notice to such person of such action, and no such
repeal or amendment or other corporate action or agreement shall deprive any
person of any right hereunder arising out of any alleged or actual act or
omission occurring prior to such 60th day.
The Corporation is hereby authorized, but shall not be required, to enter
into agreements with any of its directors, officers or employees providing for
rights to indemnification and advancement and reimbursement of reasonable
expenses, including attorneys' fees, to the extent permitted by law, but the
Corporation's failure to do so shall not in any manner affect or limit the
rights provided for by this Article V or otherwise.
For purposes of this Article V, the term "Corporation" shall include any
legal successor to the Corporation, including any corporation which acquires
all or substantially all of the assets of the Corporation in one or more
transactions. For purposes of this Article V, the Corporation shall be deemed
to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Corporation or any subsidiary
thereof also imposes duties on, or otherwise involves services by, such person
to the plan or participants or beneficiaries of the plan, and excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
The rights granted pursuant to or provided by the foregoing provisions of
this Article V shall be in addition to and shall not be exclusive of any other
rights to indemnification and expenses to which any person may otherwise be
entitled under any statute, rule, regulation, certificate of incorporation,
bylaw, agreement or otherwise.
II-8
<PAGE>
ARTICLE VI
SHARES OF THE CORPORATION
SECTION 6.01. Certificates for Shares. The shares of the Corporation
shall be represented by certificates in such form as shall be determined by
the Board of Directors, signed by the Chairman of the Board, the President, a
Vice Chairman of the Board or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or Assistant Treasurers of the
Corporation. Such certificates shall be sealed with the seal of the
Corporation or a facsimile thereof and shall contain such information as is
required by law to be stated thereon. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned by a
transfer agent or registered by a registrar other than the Corporation itself
or its employee. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the time of issue. All
certificates for shares shall be consecutively numbered or otherwise
identified. All certificates exchanged or surrendered to the Corporation for
transfer shall be canceled.
SECTION 6.02. Record of Shareholders. The Corporation shall keep at the
office of the Corporation in the State of New York a record containing the
names and addresses of all shareholders, the number and class of shares held
by each and the dates when they respectively became the owners of record
thereof. The Corporation shall be entitled to treat the persons in whose names
shares stand on the record of shareholders as the owners thereof for all
purposes.
SECTION 6.03. Transfer of Shares. Transfers of shares on the record of
shareholders of the Corporation shall be made only upon surrender to the
Corporation of the certificate or certificates for such shares, duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer.
SECTION 6.04. Lost, Stolen or Destroyed Certificates. The Board of
Directors, in its discretion, may require the owner (or his legal
representatives) of any certificate representing shares of the Corporation
alleged to have been lost, stolen, or destroyed to give the Corporation a bond
in such sum as the Board may direct sufficient to indemnify the Corporation
against any liability or expense which it may incur by reason of the original
certificate remaining outstanding, as a condition of the issuance of a new
certificate for shares in the place of any certificate alleged to have been
lost, stolen or destroyed. Proper and legal evidence of such loss, theft or
destruction shall be procured for the Board if required. The Board in its
discretion may refuse to issue such new certificate save upon the order of a
court having jurisdiction in such matters.
ARTICLE VII
SEAL
The Board shall provide a seal for the Corporation which the Corporation
may use by causing it or a facsimile to be affixed or impressed or reproduced
in any other manner. Any officer of the Corporation shall have the power to
use and attest the corporate seal.
ARTICLE VIII
CONTRACTS, CHECKS, DRAFTS, ETC.
SECTION 8.01. Contracts, Etc. Except as otherwise provided in these
By-laws or by law, all checks, orders, contracts, leases, notes, drafts and
other documents and instruments in connection with the business of the
Corporation may be signed by any Executive Officer of the Corporation or by
such other officer, employee or agent thereunto authorized by resolution of
the Board of Directors, or in writing by the Chief Executive Officer, or by an
officer or officers designated by him subject to such restrictions as the
Chief Executive Officer shall prescribe.
SECTION 8.02. Auditor. Notwithstanding the foregoing, the Auditor shall
have no power to sign checks, vouchers, agreements or other documents or
instruments on behalf of the Corporation, except that the
II-9
<PAGE>
Auditor is authorized to certify in the name of, or on behalf of, the
Corporation, in its own right or in a fiduciary or representative capacity, as
to the accuracy and completeness of any account, schedule of assets, or other
document, instrument or paper requiring such certification and to sign in the
name of, or behalf of, the Corporation reports and responses to any regulatory
authority.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE X
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted
(a) by vote of the holders of the shares at the time entitled to vote in the
election of directors at any annual meeting of the shareholders or at any
special meeting of the shareholders called for that purpose, or (b) by the
Board of Directors at any meeting of the Board, except in the case of any
particular provision at any time adopted by the shareholders and specified as
not subject to amendment or repeal by the Board. If any By-law regulating an
impending election of directors is adopted, amended or repealed by the Board,
there shall be set forth in the notice of the next meeting of shareholders for
the election of directors the By-law so adopted, amended or repealed, together
with a concise statement of the changes made.
II-10
<PAGE>
<PAGE>
EXHIBIT 99.2
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statement of condition as
of December 31, 1994, unaudited pro forma condensed statement of income for
the year ended December 31, 1994 and unaudited pro forma condensed
statement of average balances for the year ended December 31, 1994
(collectively, the "Pro Forma Statements"), were prepared to present the
estimated effects of the pending Disposition and Merger transaction with
The Chase Manhattan Corporation, the related restructuring transactions and
the effect of the Services Agreement as if such transactions had occurred
for statement of condition purposes as of December 31, 1994 and for
statement of income purposes as of January 1, 1994.
The "Disposition Adjustments" column in each of the Pro Forma
Statements includes the following:
the reduction in assets and liabilities and the elimination from
operations of the revenue and expenses related to the merger of the
Chase Acquired Business, and
the reduction in Securities and Short-Term Investments and Short-Term
Borrowings arising from the Corporation's rebalancing of its asset and
liability structure.
The "Other Adjustments" column in each of the Pro Forma Statements
includes the following:
the balance sheet impact of the nonrecurring adjustments as set forth
in footnote (k) of the Notes to Pro Forma Condensed Financial
Statements, and
the ongoing impact on the Corporation's results of operations arising
from the nonrecurring adjustments and the Services Agreement including
the nonrecurring adjustments that have been incurred during the fourth
quarter.
All of the pro forma adjustments are based upon available information
and upon certain assumptions that the Corporation believes are appropriate
and include only "exit costs" as defined in Emerging Issues Task Force
Issue 94-3 ("EITF 94-3") that are directly related to the transactions.
The information is not intended to be indicative of the Corporation's
actual results had the transactions occurred as of the dates indicated
above nor do they purport to indicate results which may be attained in the
future.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical financial statements and other financial
information relating to the Corporation. For financial reporting purposes,
the Company will be a "successor registrant" to the Corporation and, as a
result, the historical information set forth in the Pro Forma Statements is
the historical information of the Corporation.
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<PAGE>
The Distribution will be accounted for by the Company as if the
Corporation had continued in existence, with the carrying amounts of the
assets and liabilities being distributed being accounted for in accordance
with generally accepted accounting principles at their historical values.
-2-
<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF CONDITION
December 31, 1994
(Dollars In Thousands)
(UNAUDITED)
Corporation
Disposition Before Other Other Corporation
Historical Adjustments(a) Adjustments Adjustments Pro Forma (l)
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents........... $ 186,134 $ (49,481) $ 136,653 $(37,132) (b) $ 99,521
Securities.......................... 1,153,526 (460,149) 693,377 - 693,377
Net Loans, After Allowance for
Credit Losses..................... 1,612,199 (170,310) 1,441,889 - 1,441,889
Other Assets........................ 271,352 (59,389) 211,963 42,924 (c) 254,887
---------- --------- ---------- -------- ----------
Total Assets........................ $3,223,211 $(739,329) $2,483,882 $ 5,792 $2,489,674
========== ========= ========== ======== ==========
LIABILITIES
Deposits............................ $2,440,371 $(521,830) $1,918,541 $ - $1,918,541
Short-Term Borrowings............... 350,515 (200,000) 150,515 41,412 (d) 191,927
Accounts Payable and
Accrued Liabilities............... 148,078 (17,499) 130,579 62,205 (e) 192,784
Long-Term Debt...................... 60,924 - 60,924 (40,753) (f) 20,171
---------- --------- ---------- -------- ----------
Total Liabilities................... 2,999,888 (739,329) 2,260,559 62,864 2,323,423
---------- --------- ---------- -------- ----------
STOCKHOLDERS' EQUITY
Common Stock - $1.00 Par Value...... 11,581 - 11,581 (1,909) (g) 9,672
Capital Surplus..................... 72,605 - 72,605 (72,605) (h)
Retained Earnings................... 244,639 - 244,639 (68,697) (i) 175,942
Treasury Stock at Cost.............. (86,139) - (86,139) 86,139 (j)
Loan to ESOP........................ (16,171) - (16,171) - (16,171)
Unrealized Gain (Loss), Net of Taxes,
on Securities Available for Sale... (3,192) - (3,192) - (3,192)
---------- --------- ------------ -------- ----------
Total Stockholders' Equity.......... 223,323 - 223,323 (57,072) 166,251
---------- --------- ---------- -------- ----------
Total Liabilities and
Stockholders' Equity.............. $3,223,211 $(739,329) $2,483,882 $ 5,792 $2,489,674
========== ========= ========== ======== ==========
CAPITAL RATIOS
As a Percentage of Risk-Adjusted
Period End Total Assets:
Tier 1 Capital.................. 13.52% 11.08%
Total Capital................... 14.79 12.13
Tier 1 Leverage..................... 5.68 6.15
</TABLE>
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<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1994
(Dollars In Thousands, Except Per Share Amounts)
(UNAUDITED)
Reversal of
Back Office Corporation
Disposition & Corporate Before Other Other Corporation
Historical Adjustments (l) Staff (m) Adjustments Adjustments Pro Forma (k)
----------- -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income............ $ 108,112 $ (42,133) $ - $ 65,979 $ - $ 65,979
Provision for Credit Losses.... 2,000 - - 2,000 - 2,000
---------- --------- -------- -------- -------- --------
Net Interest Income After
Provision for Credit Losses.. 106,112 (42,133) - 63,979 - 63,979
Fees........................... 295,565 (102,704) - 192,861 - 192,861
Securities Gains (Losses), net. (42,118) - - (42,118) 44,172 (k) 2,054
Other Income................... 16,748 (5,447) - 11,301 (1,966) (n) 9,335
---------- --------- -------- -------- -------- --------
Total Revenue.................. 376,307 (150,284) - 226,023 42,206 268,229
---------- --------- -------- -------- -------- --------
Operating Expenses
Salaries and Benefits.......... 207,483 (72,798) 24,691 159,376 (31,696) (o) 127,680
Net Occupancy.................. 40,030 (10,616) 4,659 34,073 (4,763) (o) 29,310
Other.......................... 94,422 (30,190) 17,236 81,468 (18,537) (o,k) 62,931
---------- --------- -------- -------- -------- --------
Total Operating Expenses....... 341,935 (113,604) 46,586 274,917 (54,996) 219,921
---------- --------- -------- -------- -------- --------
Income Before Income Tax
Expense...................... 34,372 (36,680) (46,586) (48,894) (97,202) 48,308
Income Tax Expense (p)......... 13,405 (16,506) (20,964) (24,065) 43,291 19,226
---------- --------- -------- -------- -------- --------
Net Income..................... $ 20,967 $ (20,174) $(25,622) $(24,829) $ 53,911 $ 29,082
========== ========= ======== ======== ======== ========
Net Income Per Share: (q)
Fully Diluted................ $ 2.12 $ 2.83
========= ==========
Average Shares Outstanding:
Fully Diluted................ 10,019,592 10,400,000
========== ==========
</TABLE>
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<PAGE>
<TABLE>
PRO FORMA CONDENSED STATEMENT OF AVERAGE BALANCES
For the Year Ended December 31, 1994
(In Thousands)
(UNAUDITED)
Disposition Adjustments
-------------------------
Chase Asset-
Acquired Liability Other Corporation
Historical Business Rebalancing Adjustments (s) Pro Forma
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents........... $ 404,181 $ (140,204) $ - $(37,132) $ 226,845
Securities and Short-Term
Investments....................... 1,824,774 (776,093) (425,000) - 623,681
Net Loans, After Allowance for
Credit Losses..................... 1,293,807 - - - 1,293,807
Other Assets........................ 465,752 (178,083)(r) - 42,924 330,593
---------- ----------- --------- -------- ----------
Total Assets........................ $3,988,514 $(1,094,380) $(425,000) $ 5,792 $2,474,926
---------- ----------- --------- -------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits............................ $2,938,579 $(1,066,035) $ - $ - $1,872,544
Short-Term Borrowings............... 595,994 - (425,000) 41,412 212,406
Accounts Payable and
Accrued Liabilities............... 164,443 (28,345) - 62,205 198,303
Long-Term Debt...................... 62,513 - - (40,753) 21,760
---------- ----------- --------- -------- ----------
Total Liabilities................... $3,761,529 $(1,094,380) $(425,000) $ 62,864 $2,305,013
---------- ----------- --------- -------- ----------
Stockholders' Equity................ 226,985 - - (57,072) 169,913
---------- ----------- --------- -------- ----------
Total Liabilities and
Stockholders' Equity.............. $3,988,514 $(1,094,380) $(425,000) $ 5,792 $2,474,926
========== =========== ========= ======== ==========
</TABLE>
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<PAGE>
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Disposition Adjustments (Pro Forma Condensed Statement of
Condition) -- The Disposition Adjustments presented in the Pro Forma
Condensed Statement of Condition reflect the disposition of the Chase
Acquired Business. The rebalancing of the Corporation's overall asset and
liability structure as a result of the pending Merger and Disposition
transaction and related restructuring has already been substantially
reflected in the historical condensed statement of condition. The Pro
Forma Condensed Statement of Average Balances presents the Corporation's
daily average balance sheet for the year ended December 31, 1994 adjusted
for the pending Disposition and Merger, including the rebalancing of the
Corporation's asset and liability structure and the Other Adjustments.
During the year ended December 31, 1994, the Chase Acquired Business
generated average non-interest bearing deposits of approximately $1,066
million. Investable Deposits, defined as total average non-interest
bearing deposits less average cash items in the process of collection and
average overdrafts, were approximately $776 million during the year ended
December 31, 1994. The predictability of the Investable Deposits provided
the Corporation with a long- and medium-term funding source. The
Corporation employed a substantial portion of the Investable Deposits to
finance its long-term financial assets. Following the execution of the
Merger Agreement, the Investable Deposits ceased to be a long-term source
of financing available to the Corporation since they would be included in
the Chase Acquired Business. Accordingly, in anticipation of the closing
of the Merger and the effective transfer of the Chase Acquired Business to
Chase, the Corporation sold approximately $800 million of long- and medium
term U.S. Government Treasury Securities ("Treasury Securities") and Agency
Securities. The proceeds of such sale will be included in the Chase
Acquired Business. (See note (l)).
(b) Cash and Cash Equivalents -- Cash and Cash Equivalents at December
31, 1994, include approximately $82.6 million of interest earning deposits
with banks. The $37.1 million adjustment is comprised of the estimated
payments of investment banking, legal, accounting, consulting and printing
professional fees ($6,000,000 -- determined based upon actual invoices and
estimates supplied by the various vendors), the estimated amount of
payments necessary to cash-out holders of outstanding stock options
($39,045,000), and the estimated amount of cash to be received from the
exercise of certain incentive stock options ($7,913,000 -- assumes the
exercise of approximately 220,000 incentive stock options at an average
exercise price of approximately $36.00 per option).
(c) Other Assets -- The $42.9 million increase in Other Assets
reflects (i) certain tax benefits resulting from the Disposition
Adjustments and the Other Adjustments ($51,246,000) and (ii) the write-off
of the net book value of premises and equipment ($3,798,000) and computer
software ($4,524,000) related to the termination of various leases.
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<PAGE>
(d) Short-Term Borrowings -- The $41.4 million increase in short-term
borrowings reflects the borrowings required to replace accrued interest and
long-term debt (see notes (e) and (f)).
(e) Accounts Payable and Accrued Liabilities -- The $62.2 million
increase in accounts payable and accrued liabilities includes estimated
severance costs ($21,100,000), the estimated present value (discounted at
8%) of the cost of terminating leases at discontinued locations
($8,202,000), the estimated cost of terminating computer hardware leases,
software licenses and contracts ($28,462,000), the estimated cost of
terminating certain incentive compensation plans ($5,100,000) and an amount
to record the reversal in accrued interest payable related to the
redemption and satisfaction and discharge of certain issues of long-term
debt ($659,000). The estimated severance costs consist of $12,700,000 of
cash severance payments and the impact of curtailment gains, enhanced
pension credits and cost of living adjustments with respect to the
Corporation's defined benefit pension and post-retirement benefit plans for
specifically identified employees and $8,400,000 of payments of transition
bonuses to certain of the Corporation's employees associated with the Chase
Acquired Business.
(f) Long-Term Debt -- The $40.8 million reduction in long-term debt
reflects the redemption of the Trust Company's 8 1/2% Capital Notes Due 2001
and the satisfaction and discharge of the Corporation's 8% Notes Due 1996.
The cost of redeeming and defeasing this long-term debt is insignificant to
the Corporation's pro forma results of operations.
(g) Common Stock -- The $1,909,000 decrease in the Corporation's
Common Stock reflects the retirement of treasury stock ($2,129,000) offset
by the aggregate par value amount of the shares to be issued pursuant to
the exercise of an estimated 220,000 incentive stock options at an
estimated average exercise price of $36.00 per share ($220,000).
(h) Capital Surplus -- The $72.6 million adjustment reflects the
retirement of treasury stock ($80,298,000) offset, in part, by the amount
of cash proceeds in excess of the par value received in connection with the
expected exercise of 220,000 incentive stock options ($7,693,000).
(i) Retained Earnings -- The $68.7 million adjustment reflects the
after-tax impact of the nonrecurring adjustments presented in note (k)
below ($64,985,000) and the amount by which the book value of treasury
stock retired exceeds capital surplus ($3,712,000).
(j) Treasury Stock at Cost -- The adjustment of $86.1 million reflects
the retirement of treasury stock.
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<PAGE>
(k) The Pro Forma Statement of Income excludes the following material
nonrecurring adjustments directly related to the transaction which are
expected to be incurred prior to or as a result of the consummation of the
Merger. However, the Pro Forma Statement of Income does include the effect
of such adjustments on the operations of the Company. The Merger is
expected to occur within the next twelve months.
<TABLE>
(Millions)
----------
<S> <C>
Severance, post-retirement benefits and related
costs (see note (e)) $ 21.1
Professional fees (see note (b)) 6.0
Cost of terminating leases for premises
(see notes (c) and (e)) 12.0
Cost of terminating computer hardware leases,
computer software licenses, contracts and
capitalized software (see notes (c) and (e)) 33.0
Cost of incentive compensation plans that are
being terminated (see note (e)) 5.1
Payout for stock options (see note (b)) 39.0
------
116.2
Applicable tax benefits 51.2
------
Total $ 65.0
======
</TABLE>
In addition to the costs enumerated in the preceding table, the
Corporation has already incurred and reflected in its historical statement
of income for the year ended December 31, 1994, the following charges.
<TABLE>
(Millions)
----------
<S> <C>
Loss on sale of securities $ 44.2
Professional fees 6.0
------
50.2
Applicable tax benefits 22.3
------
Total $ 27.9
======
</TABLE>
These charges are eliminated in the Other Adjustments columns so that
the Company Pro Forma results excludes the one-time nonrecurring effect of
these charges.
In conjunction with the announcement of the Distribution and the
Merger, the Company disclosed that it may incur up to $110 million of
restructuring charges on an after-tax basis in connection with the
Distribution and the Merger. The difference between the $110 million and
the charges described above represents charges that do not presently meet
the definition of "exit costs" as defined by EITF 94-3.
-8-
<PAGE>
While the amounts set forth above represent the Corporation's best
estimate of the restructuring costs that will be incurred, the ultimate
level of such charges will not be precisely determinable until the Closing
Date.
The cost of terminating computer hardware leases takes into
consideration the estimated residual value of the equipment when it is
returned to the lessor. Such residual values could be severely impacted
and the cost of terminating the leases increased if the manufacturer
releases upgraded versions of the equipment prior to the lease termination
date.
The Corporation continues to review its staffing requirements. This
review will be completed by the Closing Date and may result in lower
staffing levels. Accordingly, the cost of severance and related benefits
may range from the above listed $21.1 million to approximately
$24.0 million.
The payout for stock options is based upon various assumptions,
including the Determined Value (as defined under "Effect of Transactions on
UST Employees and UST Benefit Plans - Retained Plans" in the Proxy
Statement-Prospectus incorporated by reference herein, filed as Exhibit
99.1 to this Form 10-K) of the shares of the Corporation's common stock,
the number of stock options that are outstanding as of the Closing Date and
the average exercise price of such outstanding options. As a result, the
actual amount of the cash payment to be made in respect of stock options
will not be determinable until the Closing Date.
In a similar manner, the other exit costs listed above are subject to
change based upon events and circumstances that will not be finalized until
the consummation of the transaction.
Pursuant to the Post Closing Covenants Agreement, the Corporation has
agreed to maintain a minimum net worth for four years following the
Distribution. See "The Distribution -- Terms of the Post Closing Covenants
Agreement -- Minimum Net Worth" included in Exhibit 99.1 to this Form 10-K,
incorporated herein by reference. The Corporation believes that its
initial annual dividend will be $1.00 per share. See "Special Factors --
Dividends and Dividend Policy" included in Exhibit 99.1 to this Form 10-K,
incorporated herein by reference.
(l) Disposition Adjustments (Pro Forma Condensed Statement of Income)
- -- The Disposition Adjustments reflect the disposition of the Chase
Acquired Business pursuant to the Disposition and Merger. The Disposition
Adjustments include the revenues and expenses of the Chase Acquired
Business as allocated in accordance with the methodologies utilized by the
Corporation's internal management reporting system. The amount of net
interest income is based upon the average Investable Deposits multiplied by
an internally calculated interest rate. The rate is based upon the rates
earned by the Corporation's long- and short-term securities. The blended
rate was 5.43% for the year ended December 31, 1994.
-9-
<PAGE>
While the average Investable Deposits for the year ended December 31,
1994 were approximately $776 million for the Chase Acquired Business, the
Investable Deposits generated by the Chase Acquired Business are subject to
seasonal fluctuation. Historically, these Investable Deposits are higher
in the first and third quarters than in the second and fourth quarters.
The Average Investable Deposits for the first and third quarters of 1994
were $1,119 million and $833 million, respectively. The Investable
Deposits for the second and fourth quarters of 1994 were $555 million and
$602 million, respectively. As a result of the Investable Deposits'
seasonality, the Chase Acquired Business' relative contribution of net
interest income to the Corporation is significantly greater during the
first and third quarters than in the second and fourth quarters. The
disposition of the Chase Acquired Business substantially eliminates the
seasonal fluctuations in the Corporation's net interest income.
Fees and Other Income represent amounts earned by the Chase Acquired
Business. In addition, fees earned by the Corporation's asset management
business from customers of the Chase Acquired Business are included in Fees
and Other Income, which fees are expected to be earned by Chase following
the Disposition and Merger. Expenses reflect direct costs incurred and
allocations of other costs in accordance with the Corporation's internal
management reporting system.
(m) Back Office and Corporate Staff -- The $46.6 million of back
office and corporate staff charges for the year ended December 31, 1994,
are derived from the Corporation's internal management accounting system
and represent the amounts allocated to the Chase Acquired Business for
services provided. Back office support costs include securities processing
and custody, check clearance and computer services processing and support
services while the corporate staff cost allocations include financial,
personnel, legal and general services support functions. Such back office
support and corporate staff costs have been added to the expenses of the
Corporation Before Other Adjustments because such costs were not eliminated
in connection with the disposition of the Chase Acquired Business. The
estimated downsizing of the corporate staff and the impact of the Services
Agreement are reflected in the Other Adjustments.
(n) Other Income -- The $2.0 million adjustment reflects the
elimination of certain revenues generated from computer processing
activities conducted for third parties which will no longer be provided
following the Disposition and Merger.
(o) Salaries and Benefits, Net Occupancy and Other Expenses --
Reflects the reduction of personnel, net occupancy costs and other
expenses, as indicated, resulting from the Disposition and Merger, the
downsizing of the Corporation's corporate staff and the Services Agreement.
(p) Income Taxes -- Income taxes reflected in the Pro Forma Statements
of Income are recorded at the statutory Federal tax rate of 35%, adjusted
for the impact of state and local taxes and nondeductible items. The
resulting effective tax rate for the Corporation was approximately 40%.
-10-
<PAGE>
Taxes have been calculated on the "Other Adjustments" in the Pro Forma
Statement of Condition at the statutory Federal tax rate of 35%, adjusted
for state and local taxes and nondeductible items. The resulting effective
tax rate was approximately 45%. The Corporation anticipates realizing
these tax benefits in the periods in which the adjustments are reported in
the Corporation's tax returns.
(q) Pro Forma Net Income Per Share -- Net income per share has been
calculated on a basis consistent with the Corporation's past practices and
was determined by dividing "Net Income -- Corporation Pro Forma" by the
estimated fully diluted average shares outstanding for the period.
Estimated fully diluted average shares outstanding include the actual
average shares outstanding of 9,381,033, the assumed exercise of
approximately 220,000 stock options and the dilutive effects of
approximately 800,000 phantom shares granted under the Corporation's
variable stock award plans. Dividends paid on phantom shares have been
added back to net income on an after-tax basis for this calculation. The
primary and fully diluted net income per share amounts are the same.
(r) For the purposes of determining the Pro Forma Condensed Statement
of Average Balances, the Chase Acquired Business average overdrafts are
included in Other Assets.
(s) For the purposes of determining the Pro Forma Condensed Statement
of Average Balances, all Other Adjustments are assumed to have occurred as
of January 1, 1994.
-11-
<PAGE>
